MB&R Piping Contractors, Inc. v. Borough of East Brady v. Gibson-Thomas Engineering Co., Inc. ( 2017 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
MB&R Piping Contractors, Inc. :
:
v. :
:
Borough of East Brady : No. 78 C.D. 2016
: ARGUED: November 15, 2016
v. :
:
Gibson-Thomas Engineering Co., :
Inc., :
Appellant :
BEFORE: HONORABLE ANNE E. COVEY, Judge
HONORABLE JULIA K. HEARTHWAY, Judge
HONORABLE DAN PELLEGRINI, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
JUDGE HEARTHWAY FILED: January 12, 2017
Gibson-Thomas Engineering Company, Inc. (Gibson) appeals from
the August 5, 2015, August 14, 2015, August 25, 2015, and December 14, 2015
orders of the Court of Common Pleas of Clarion County (trial court), which denied
Gibson’s: (1) motion for summary judgment; (2) motion for reconsideration, or in
the alternative, motion for summary judgment; (3) motion to sever the Borough of
East Brady’s (Borough) contractual indemnification claim; and (4) post-trial
motion, and awarded the Borough its attorney’s fees and costs. We affirm in part
and vacate and remand in part.
In September 2009, the Borough and the Pennsylvania Department of
Environmental Protection (Department) entered into a consent order requiring the
Borough to build a new waste water treatment plant (Project). On June 8, 2011,
the Borough entered into a contract with Gibson to provide engineering services
for the Project (Agreement), whereby Gibson agreed to design and manage the
Project. Gibson contracted to be the Borough’s representative on the job site,
perform the initial survey, plan and design the plant, and provide contract
administration and inspection services during construction. The Agreement
contained an indemnification clause that stated as follows:
[Gibson] shall indemnify, defend and hold BOROUGH
harmless from any and all claims, suits, actions, liabilities
and cost of any kind by any third parties arising out of or
in connection with the performance of his work under the
terms of this Agreement, including those of any
governmental body or agency, this indemnification to
include but not be limited to reasonable attorney’s fees.
(Agreement, Section VI. 6.01.)
In July 2011, the Borough entered into a contract with MB&R Piping
Contractors, Inc. (MB&R) to build the treatment plant (Contract). The Project was
to be completed by June 2012. However, the Project was not completed and
disputes arose between the parties.
In August 2012, upon Gibson’s advice, the Borough terminated its
contract with MB&R. MB&R sued the Borough for breach of contract and
violations of what is commonly known as the Pennsylvania Prompt Payment Act
2
(Act),1 62 Pa. C.S. §§ 3931-3939, alleging that it had been unjustly terminated and
was owed substantial funds for completed work (Complaint). The Borough filed
an answer and new matter to the Complaint along with a counterclaim against
MB&R, seeking damages for MB&R’s alleged breach of contract.
In December 2012, the Borough filed a third-party complaint against
Gibson alleging that any damages sustained by MB&R were caused by the errors
and omissions of Gibson and that Gibson was required to indemnify the Borough
for any damages and liability the Borough would suffer as a result of MB&R’s
claims.
Gibson filed a motion for summary judgment and a motion in limine,
arguing that the Borough’s claim as set forth in paragraphs 24 and 25 of the third-
party complaint, must be dismissed for lack of expert testimony; and that the
Borough’s claim for indemnification in paragraph 26 must be dismissed because
common law indemnity is not available in a breach of contract action and the
Borough never argued that it had a contractual right to indemnification. As for the
motion in limine, Gibson sought dismissal of the Borough’s claims for damages.
On August 5, 2015, the trial court granted Gibson’s motion in limine,
finding that the Borough cannot claim compensatory or consequential damages
against Gibson, but denied its motion for summary judgment, stating that the
Borough may maintain a claim for contractual indemnification against Gibson
1
Gibson mistakenly cites the Act, 62 Pa. C.S. §§ 3931-3939, as the Commonwealth
Procurement Code (Code); however, the Code is at 62 Pa. C.S. §§ 101-2311.
3
based upon the language in the Agreement. The trial court reasoned that “although
the Borough did not plead a contract provision, the . . . Agreement between the
Borough [and Gibson] does include such a provision.” (Trial Ct. Op., 8/5/15, at 5.)
Gibson filed a motion for reconsideration or, in the alternative, a
motion for summary judgment. Gibson argued that the Borough’s contractual
indemnification claim must fail because it was never pled, was not ripe, and was
not available for the Borough’s contractual liabilities to MB&R. The trial court
denied Gibson’s motion on August 14, 2015. Gibson then filed a motion to sever
the indemnification claim from MB&R’s claims against the Borough, which the
trial court denied on August 25, 2015. Thus, the entire case was submitted to the
jury.
MB&R discussed attorney’s fees and interest at the trial, during a
sidebar, and in a conference in chambers. The Borough, however, did not mention
a claim for attorney’s fees, or how such claims should be handled by the trial court
in the event that the Borough was successful in its claim for contractual
indemnification.
Ultimately, the jury found that the Borough acted in bad faith and
returned a verdict in favor of MB&R and against the Borough. The jury also found
that the Borough’s liability arose out of Gibson’s work on the Project under the
4
terms of the Agreement.2 Thus, the trial court determined that the Borough was
liable to MB&R and Gibson was required to indemnify the Borough.
MB&R filed a motion to mold the verdict to reflect interest, penalties,
and attorney’s fees pursuant to the Act due to its successful claim. The Borough
also filed a motion to mold the verdict, seeking a judgment against Gibson for all
amounts assessed against the Borough. The Borough further asked the trial court
to award attorney’s fees and expert witness fees by adding them onto the judgment
against Gibson. The Borough attached copies of the fees to its motion.
Gibson filed a motion for post-trial relief, seeking a judgment
notwithstanding the verdict or a new trial. On December 14, 2015, the trial court
denied Gibson’s motion for post-trial relief and granted MB&R’s motion to mold
the verdict to include damages pursuant to the Act. The trial court entered
judgment against the Borough in the amount of $845,176.51 ($254,873.14 in
remaining contract balance; $175,216.26 in Act interest; $208,168.67 in Act
penalties; and $206,918.44 in attorney’s fees and costs). The trial court further
granted the Borough’s motion to mold the verdict to provide for indemnification
and attorney’s fees. The trial court entered judgment against Gibson in the amount
2
As part of the Agreement, Gibson would receive and review applications for payment
from MB&R, which Gibson would submit to the Borough for approval. Once approved, Gibson
would submit documents on the Borough’s behalf to the Pennsylvania Infrastructure Investment
Authority (PennVest) for payment of grant funds from PennVest to the Borough. At Gibson’s
recommendation, the Borough did not approve payment five to MB&R. Gibson did not bring
payment five before the Borough again, nor did it ever bring payment six before the Borough for
approval. Further, Gibson recommended that the Borough terminate its contract with MB&R.
5
of $698,503.10 ($175,216.26 in Act interest; $208,168.67 in Act penalties;
$206,918.44 in MB&R attorney’s fees and costs; and $108,199.73 in Borough
attorney’s fees and costs). The trial court reasoned that the Borough was excused
from presenting evidence of its attorney’s fees at trial because the parties deferred
the question of recovery of attorney’s fees until after trial. Gibson appealed the
four orders to this Court.3 The legal issues involved in these four orders can be
broadly categorized into a claim for indemnification and a claim for attorney’s fees
and costs.
Claim for Indemnification
Initially, Gibson contends that the trial court erred in permitting the
Borough to advance a claim for contractual indemnification against Gibson
because the language in the Agreement contained only words of broad, general
import, and was not clear and unequivocal as required by Ruzzi v. Butler Petroleum
Company, 588 A.2d 1 (Pa. 1991).
The Perry-Ruzzi rule states that:
3
Our review of the trial court’s denial of summary judgment, denial of post-trial motions
and decision to mold a verdict to include attorney’s fees, and grant of a new trial is whether the
trial court abused its discretion or committed an error of law. Commonwealth v. Manson, 903
A.2d 69, 73 n.4 (Pa. Cmwlth. 2006); Daddona v. Thind, 891 A.2d 786, 797-98 (Pa. Cmwlth.
2006); Duquesne Light Company v. Woodland Hills School District, 700 A.2d 1038, 1051 (Pa.
Cmwlth. 1997). Our review of the trial court’s refusal to sever a matter is whether the trial court
abused its discretion. Gallagher v. Pennsylvania Liquor Control Board, 883 A.2d 550, 558-59
& n.11 (Pa. 2005).
6
a contract of indemnity against personal injuries should
not be construed to indemnify against the negligence of
the indemnitee, unless it is so expressed in unequivocal
terms. The liability on such indemnity is so hazardous,
and the character of the indemnity so unusual and
extraordinary, that there can be no presumption that the
indemnitor intended to assume the responsibility unless
the contract puts it beyond doubt by express stipulation.
Perry v. Payne, 66 A. 553, 557 (Pa. 1907).
However, the Borough does not seek indemnification from Gibson for
damages arising out of the Borough’s own negligence, for the Borough’s
independent contractual liability to a third party, or for any matter outside the
knowledge or control of Gibson. The Borough seeks indemnification for liabilities
which arose out of or in connection with Gibson’s performance of work under the
terms of the Agreement. (See Agreement, Section VI. 6.01.) The Agreement was
created with an indemnification clause that applied to liabilities that may be
incurred by the Borough due to Gibson’s performance of its work under the
Agreement. (See id.)
“[T]he indemnitor is not agreeing to insure the indemnitee against
loss, but, rather is acknowledging that its own actions may result in liability being
imposed upon the indemnitee, and that it will, in such cases, reimburse the
indemnitee for that liability.” Deskiewicz v. Zenith Radio Corporation, 561 A.2d
33, 36 (Pa. Super. 1989). Further, “where the injury is the result of the
indemnitor’s active negligence, and the indemnitee is, at most, passively negligent
. . . the indemnitor can hardly be said to be “insuring” against the injury, for the
injury would not have occurred absent the indemnitor’s own negligence.” Id.
7
Here, the jury found that the Borough: (1) breached the Contract by
not paying MB&R its remaining Contract balance; (2) acted in bad faith in not
paying MB&R; and (3) wrongfully terminated the Contract with MB&R. (Verdict,
9/3/15, at 1-2.) The jury further found that the Borough’s breach and wrongful
termination “arose out of or was in connection with the performance of [Gibson’s]
work under the terms of the . . . Agreement.” (Id.) The testimony and evidence
demonstrated that it was Gibson’s responsibility under the Agreement to perform
all of the duties on the Project, including construction management, which
involved the processing of timely payments to MB&R under the Contract. Gibson
failed to process payments five and six to MB&R, recommended to the Borough
that they not pay MB&R due to lack of progress on the Project, and recommended
that the Borough terminate the Contract with MB&R. Thus, pursuant to the
Agreement, Gibson was to indemnify the Borough for the Borough’s liability due
to the breach of its obligations to MB&R on the Project due to Gibson’s
management of the Project. Because Gibson’s management of the Project caused
the Borough’s breach, the trial court did not err in permitting the Borough to
advance a claim for contractual indemnification against Gibson.
Next, Gibson contends that the trial court erred in discovering the
Borough’s contractual indemnification claim. Gibson states that the Borough
never adequately pled a contractual indemnification claim in its complaint and
never mentioned such a claim in any subsequent filings.
Pa. R.C.P. No. 1019(a) states that in pleadings, “[t]he material facts
on which a cause of action or defense is based shall be stated in a concise and
8
summary form.” Also, “[w]hen any claim or defense is based upon an agreement,
the pleading shall state specifically if the agreement is oral or written” and “[i]f the
agreement is in writing, it must be attached to the pleading.” Pa. R.C.P. No.
1019(h) and note. It does not require a plaintiff “to state the legal theory or
theories underlying [the] complaint.” DelConte v. Stefonick, 408 A.2d 1151, 1153
(Pa. Super. 1979).
A purpose behind the rules of pleading is to enable
parties to ascertain, by utilizing their own professional
discretion, the claims and defenses that are asserted in the
case. The purpose would be thwarted if courts, rather
than the parties, were burdened with the responsibility of
deciphering the cause of action from a pleading of facts
which obscurely support the claim in question.
Krajsa v. Keypunch, Inc., 622 A.2d 355, 357 (Pa. Super. 1992). Further, the
Pennsylvania Supreme Court has determined that courts should not, sua sponte,
search the complaint for a viable cause of action. Steiner v. Markel, 968 A.2d
1253, 1259-60 (Pa. 2009).
Here, the Borough alleged in its third-party complaint that: (1) MB&R
was suing the Borough and attached MB&R’s complaint (Third-party Comp., ¶1 at
3); (2) the Borough entered into the Agreement with Gibson to manage the Project
and attached the Agreement containing the indemnification clause at issue (id., ¶9
at 5); (3) the Borough relied upon Gibson to fulfill its duties (id., ¶12 at 5); (4) if
MB&R’s allegations were established, all injury and damages were caused by
Gibson (id., ¶¶24-25 at 7-8); and (5) Gibson is liable to the Borough and “required
to indemnify” the Borough for any damages and liability the Borough may suffer
(id., ¶26 at 8). Thus, Gibson was aware that the Borough was seeking
9
indemnification in its third-party complaint because sufficient essential facts were
alleged. The trial court did not err in concluding that the Borough properly
advanced a contractual indemnification claim.
Next, Gibson contends that the trial court erred in permitting the
Borough to advance a contractual indemnification claim against Gibson when the
claim was not ripe and had not accrued to the Borough. Here, the Borough did not
pay any damages to MB&R until after the jury verdict and the trial court’s ruling
on the indemnification claim.
Pa. R.C.P. No. 2252(a)(1) and (4) provide for the joining of additional
defendants to a lawsuit:
(a) . . . [A]ny party may join as an additional defendant
any person not a party to the action who may be (1)
solely liable on the underlying cause of action against the
joining party, or … (4) liable to or with the joining party
on any cause of action arising out of the transaction or
occurrence or series of transactions or occurrences upon
which the underlying cause of action against the joining
party is based.
The joinder of additional defendants avoids multiple lawsuits by settling all claims
in one action. 202 Island Car Wash, L.P. v. Monridge Construction, Inc., 913
A.2d 922, 926 (Pa. Super. 2006). A right to seek recovery of indemnification
amounts does not accrue until after the party seeking the indemnification pays the
claim. Chester Carriers, Inc. v. National Union Fire Insurance Company of
Pittsburgh, 767 A.2d 555, 563 (Pa. Super. 2001).
10
Here, upon entry of judgment in favor of MB&R and against the
Borough, the Borough became obligated to pay the judgment to MB&R and
Gibson, simultaneously, became obligated to pay the same sum to the Borough
under the indemnification clause. However, when a party becomes obligated to
pay indemnification or when a party awarded indemnification seeks to recover
those amounts is different from a court determining whether a party is entitled to
indemnification. The trial court must first determine if the party is liable, hence
the joinder of additional defendants to avoid multiple suits. Thus, the trial court
did not err in permitting the Borough to join Gibson and advance a contractual
indemnification claim because this determined liability; it was not a claim to
enforce the obligation to pay.
Next, Gibson contends that the trial court should have severed the
contractual indemnification claim from the underlying liability claims. Gibson
further argues that the trial court erred in permitting the jury to consider the
contractual indemnification claim since the interpretation, scope, and application of
the indemnification clause is entirely a matter of law for the court to determine.
The decision whether to sever claims at trial is entrusted to the trial
court. Pa. R.C.P. No. 213. There was no need to sever the claim because the facts
and circumstances involved in the indemnification claim and the underlying breach
of contract action were the same. The trial court did not err in denying the motion
to sever the Borough’s contractual indemnification claim.
11
Further, the interpretation of a contractual indemnification clause, like
the interpretation of a contract, is a question of law for the court and should not be
submitted to a jury. Lane v. Commonwealth, 954 A.2d 615, 618-19, 25 (Pa. Super.
2008). However, the trial court did not submit the indemnification clause to the
jury for interpretation. Instead, the trial court submitted a factual issue to the jury,
asking the jury to find whether the Borough’s liability to MB&R “arose out of or in
connection with the performance of Gibson[’s] work under the terms of the . . .
Agreement.” Thus, the jury did not address a question of law, but was asked to
make a finding of fact, which is its function.
Claim for Attorney’s Fees and Costs
Gibson contends that the trial court erred in awarding the Borough
attorney’s fees and costs when the Borough did not plead a claim for fees, offer
testimony or evidence at trial to support such a claim, take part in any agreement or
discussion during trial concerning a claim, or list any exhibits as evidence of a
claim.
A party must plead the relief it seeks. Pa. R.C.P. No. 1021(a). Here,
the Borough attached the Agreement with the indemnity clause to its third-party
complaint. The construction of an indemnity clause is a question of law for the
trial court. Lane, 954 A.2d at 618-19. The Agreement provides that
indemnification is “to include but not be limited to reasonable attorney’s fees.”
(Agreement, 6/8/11, Section VI. 6.01.) The trial court found that Gibson had
notice that the Borough was seeking attorney’s fees via the Agreement, which
12
Gibson had drafted to include the “attorney’s fees” language. Thus, once the trial
court determined that the Borough was entitled to indemnification from Gibson,
the plain language of the Agreement dictated that the Borough was entitled to
attorney’s fees. Further, the trial court determined that the discussion of attorney’s
fees was premature and, therefore, deferred any discussion of such fees until after
the jury decision. Albeit related to MB&R’s request for attorney’s fees, the trial
court deemed it unnecessary for the Borough to present any testimony or evidence
regarding the fees until after the jury’s verdict. Thus, the trial court did not err in
granting the Borough’s request for attorney’s fees.
Gibson further contends that the trial court erred in awarding the
Borough all of its attorney’s fees and costs when most of the fees were expended
seeking indemnification from Gibson and not in defending MB&R’s claim against
the Borough. We agree.
Only attorney’s fees expended in defending against the merits of the
underlying case may be recouped by the indemnitee, not that portion allocable to
the indemnification litigation. Boiler Engineering and Supply Company, Inc. v.
General Controls, Inc., 277 A.2d 812, 814 (Pa. 1971). The trial court refused to
reduce the fees because the Borough had not designated its fees as either in defense
of the claim or pursuit of indemnification and the trial court “lacks any . . . accurate
basis for reducing the Borough’s reasonable attorneys’ fees by the portion
allocable to the indemnity litigation.” (Tr. Ct. Op., 12/14/15, at 24.) However, the
trial court must make an allocation of attorney’s fees expended in defending
against the underlying matter, and that portion expended seeking indemnification.
13
See Boiler. Thus, we must vacate this part of the trial court’s order and remand to
the trial court for an allocation of attorney’s fees. The trial court may take
additional testimony and evidence, limited to this subject.
Accordingly, we affirm in part and vacate and remand in part.
__________________________________
JULIA K. HEARTHWAY, Judge
14
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
MB&R Piping Contractors, Inc. :
:
v. :
:
Borough of East Brady : No. 78 C.D. 2016
:
v. :
:
Gibson-Thomas Engineering Co., :
Inc., :
Appellant :
ORDER
AND NOW, this 12th day of January, 2017, the orders of the Clarion
County Court of Common Pleas (trial court) in the above-captioned matter are
affirmed in part and vacated in part and this matter is remanded in part. We vacate
that part of the trial court’s order that awarded the Borough of East Brady
$108,199.73 in attorney’s fees and costs, and remand for the trial court to take any
additional necessary testimony or evidence in order to allocate the attorney’s fees
appropriately, in accordance with this opinion.
Jurisdiction relinquished.
__________________________________
JULIA K. HEARTHWAY, Judge