Valhal Corp. v. Sullivan Associates, Inc.

• Decision Date: 03 January 1995
• Docket Number: 94-1241,Nos. 94-1221,s. 94-1221
• Parties: VALHAL CORP., Cross-appellant v. SULLIVAN ASSOCIATES, INC., Architects, Planners, Engineers, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 195

44 F.3d 195

VALHAL CORP., Cross-appellant v. SULLIVAN ASSOCIATES, INC., Architects, Planners, Engineers, Appellant.

Nos. 94-1221, 94-1241.

United States Court of Appeals Third Circuit.

Argued Sept. 26, 1994.

Decided Jan. 3, 1995.

Kean K. McDonald, Pamela Tobin (argued), Lisa C. Fogel, Labrum & Doak, Philadelphia, PA, for appellant.

Ira B. Silverstein (argued), Gerald E. Arth, Fox, Rothschild, O'Brien & Frankel, Philadelphia, PA, for cross-appellant.

William J. Kennedy, Robert C. Clothier, Dechert, Price & Rhoads, Philadelphia, PA, for amici curiae: American Consulting Engineers Council, Hazardous Waste Action Coalition, Consulting Engineers Council of Pennsylvania, and AFSE: The Association of Engineering Firms Practicing in the Geosciences.

C. Grangier Bowman, Gunther O. Carrle, Powell, Trachtman, Logan, Carrle & Bowman, P.C., King of Prussia, PA, for amici curiae: American Institute of Architects, Nat. Pennsylvania Soc. of Architects and its Regional Chapters--AIA, Bucks County, AIA Central PA, Eastern PA, AIA, Middle, PA, AIA, Northeastern PA, AIA, Northwestern PA, AIA, AIA Philadelphia and AIA Pittsburgh, Coalition of American Structural Engineers, Delaware Valley Ass'n of Structural Engineers, National Soc. of Professional Engineers, Pennsylvania Soc. of Professional Engineers, Nat. Council of Structural Engineers Associations.

Before: SCIRICA, NYGAARD and McKEE, Circuit Judges.

OPINION OF THE COURT

McKEE, Circuit Judge:

This dispute centers on the enforceability of a limitation of liability clause in a contract between a real estate developer (Valhal Corporation), and an architectural firm (Sullivan Associates). Valhal and Sullivan have both filed appeals from the order of the district court denying Sullivan's motion for partial summary judgment and granting Valhal's motion for partial summary judgment. The district concluded that the disputed clause was part of the contract but that it violated public policy and was therefore unenforceable. We will reverse, and dismiss for lack of jurisdiction.

I. Factual and Procedural Background

Valhal is a New York corporation which specializes in the management and development of real estate. Sullivan Associates, Inc., is a Pennsylvania corporation specializing in architectural, planning and engineering services. In March of 1989, Valhal became interested in buying a parcel of real estate located at 401 N. 21st Street in Philadelphia, Pennsylvania, known as the "Channel 57 Property". Valhal planned to build a high-rise residential tower on a portion of that property. In early June of 1989, Valhal and Sullivan discussed the possibility of Sullivan performing certain work in connection with the project, including a feasibility study.

As a result of those discussions, Sullivan forwarded a proposal to Valhal, dated June 7, 1989, detailing the services which Sullivan would perform. A document entitled "Standard Consulting Contract Terms and Conditions" was attached to the proposal and provided in part:

Enclosed you will find our Standard Consulting Contract Terms and Conditions which are hereby made a part of this proposal, as well as a copy of our Hourly Billing Rates for your knowledge.

We believe the above scope of services incorporates the elements discussed. If you are in agreement with the terms of this proposal, we ask that you sign both copies and return one copy for our records. At that time, a retainer in the amount of $1,000 is to be provided to Sullivan Associates, Inc.

Paragraph 9 of the attached Standard Consulting Contract Terms and Conditions is at the heart of the current controversy. Paragraph 9 provided:

The OWNER agrees to limit the Design Professional's liability to the OWNER and to all construction Contractors and Subcontractors on the project, due to the Design Professional's professional negligent acts, errors or omissions, such that the total aggregate liability of each Design Professional shall not exceed $50,000 or the Design Professional's total fee for services rendered on this project.

Should the OWNER find the above terms unacceptable, an equitable surcharge to absorb the Architect's increase in insurance premiums will be negotiated.

The Standard Consulting Contract Terms and Conditions was signed by Andrew Sullivan as president of the company.

Sullivan's initial proposal provided that its services would be performed in two phases--Phase "A" and Phase "B"--and that Sullivan's total fee would be $5,000. Valhal responded by requesting that a service to be performed under Phase "B" be included under Phase "A" and by requesting that two completely new services be added to Phase "A". Sullivan agreed and a new proposal was submitted to Valhal on June 22, 1989 in which Sullivan increased its fee from $5,000 to $7,000 because of the additional work it was to perform under Phase A. This second proposal once again incorporated the Standard Contract Terms and Conditions, including the limitation of liability provision, and was again signed by Andrew Sullivan.

After reviewing the second proposal, Valhal requested another change to which Sullivan agreed. Sullivan then submitted a third proposal on July 24, 1989, which also incorporated the Standard Contract Terms and Conditions, including the limitation of liability provision which remained unchanged and which was signed by Andrew Sullivan. Although Valhal never signed the proposal letter or the Standard Contract Terms and Conditions, Valhal did fax a letter to Sullivan dated August 4, 1989 signed by Valhals Vice-President. That letter stated:

As per your conversation with my assistant this morning, we would like you to begin your study of the Channel 57 property as soon as possible. This letter will serve as authorization for you to initiate a feasibility study highlighting the possibility of the construction of a tower [on the property]. We would like your study to include engineering research, as well as estimation of construction costs, with similar structures such as Corman (sic) suites sited (sic) for comparison.

Sullivan responded by performing the services outlined in the July 24, 1989 proposal, and thereafter provided a written report to Valhal in which Sullivan concluded that the Channel 57 property was not burdened with any height restrictions and that it was possible to erect the tower on the property without any special governmental approvals.

Valhal thereafter entered into an Agreement of Sale for the purchase of the Channel 57 property. However, after the sale contingencies expired, Valhal learned that the property was subject to a height restriction which would be violated by its building. Nevertheless, Valhal proceeded to closing and paid the purchase price of $10.1 million. ¹ Valhal then brought a diversity action against Sullivan pursuant to 28 U.S.C. Sec. 1332 seeking damages in excess of $2,000,000 for breach of contract, negligence, gross negligence and negligent misrepresentation based upon Sullivan's failure to inform it of the height restriction.

Sullivan thereafter moved for partial summary judgment on the grounds that its liability was expressly limited to $50,000 and that the district court therefore lacked diversity jurisdiction. Valhal moved to strike the limitation of liability provision arguing that it was not a part of the contract and that even if it was, it was unenforceable. Valhal also argued that the limitation of liability clause, if enforceable, was limited only to its claim for negligence and did not apply to its breach of contract claim or to its gross negligence claim. The district court treated the parties' motions as cross-motions for summary judgment, denied Sullivan's motion, and granted Valhal's motion. The court ruled that the provision was part of the contract, but that it was against public policy as expressed in 68 Pa.Stat.Ann. Sec. 491 (Purdons 1994) (the anti-indemnity statute) and therefore unenforceable. See Memorandum and Order, dated May 17, 1993. ² Valhal Corp. v. Sullivan Associates, Inc., 1993 WL 175285 (E.D.Pa.1993).

Thereafter, the jury returned a verdict in favor of Valhal on both the contract and negligence claims but awarded damages of $1,000,000 on the contract claim only. The jury also concluded that Sullivan was not liable for gross negligence or negligent misrepresentation. Sullivan's post-verdict motions were denied, and this appeal followed.

II. Discussion

Both Sullivan and Valhal now renew the arguments they made to the district court. We will consider the parties' claims seriatim.

The standard of review applicable to a grant of summary judgment is plenary. Bixler v. Central Pa. Teamsters Health & Welfare Fund, 12 F.3d 1292, 1297 (3d Cir.1993). "On review, the appellate court is required to apply the same test the district court should have utilized initially." Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977). A motion for summary judgment shall be granted if the court determines "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining if there is a genuine issue of material fact, "[i]nferences ... drawn from the underlying facts ... must be viewed in the light most favorable to the party opposing the motion. The non-movant's allegations must be taken as true and, when these assertions conflict with those of the movant, the former must receive the benefit of the doubt." Goodman, 534 F.2d at 573.

A. The Limitation of Liability Clause is Part of the Contract

Although Valhal admits that it contracted with Sullivan, it relies primarily upon L.B. Foster Co. v. Tri-W Constr. Co., Inc., 409 Pa. 318, 186 A.2d 18 (1962), to argue that the provision limiting Sullivan's liability to $50,000 was not part of the contract. Valhal asserts that under L.B. Foster Co. such a provision cannot be enforced under Pennsylvania law...