Knecht, Inc. v. United Pacific Ins. Co.

• Decision Date: 17 November 1988
• Docket Number: No. 88-1280,88-1280
• Citation: 860 F.2d 74
• Parties: KNECHT, INC. v. UNITED PACIFIC INSURANCE COMPANY, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 74

860 F.2d 74

KNECHT, INC. v. UNITED PACIFIC INSURANCE COMPANY, Appellant.

No. 88-1280.

United States Court of Appeals Third Circuit.

Argued August 29, 1988.

Decided Oct. 24, 1988.

Rehearing and Rehearing In Banc Denied Nov. 17, 1988.

Howard M. Levinson (argued), Robert N. Gawlas, Jr., Rosenn, Jenkins & Greenwald, Wilkes-Barre, Pa., for appellant.

Lawrence A. Borda (argued), Andrew Fylypovych, Edward M. Napierkowski, Harvey, Pennington, Herting & Renneisen, Philadelphia, Pa., for appellee.

Before SLOVITER, GREENBERG and COWEN, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

This matter is before the court on appeal by defendant United Pacific Insurance Company from an order denying its motion pursuant to Fed.R.Civ.P. 59(e) to alter or amend a summary judgment entered in favor of plaintiff Knecht, Inc. and from an order for attorney's fees in this action on a labor and material payment bond. The district judge ruled on cross-motions for summary judgment that Knecht was entitled to recover on the bond and thus our scope of review on this issue is plenary. See Goodman v. Meade 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). We will affirm the summary judgment but will reverse the order for attorney's fees.

The undisputed facts leading to this appeal are as follows. On November 19, 1983 Knoll International, Inc., as owner, entered into a contract with Sordoni Construction Co., as contractor, for the construction of a new assembly/shipping facility adjacent to Knoll's plant in East Greenville, Montgomery County, Pennsylvania. This was a substantial project with a maximum cost to Knoll of $14,700,000 and, not surprisingly, the contract documents were complex. They provided for protection of Knoll from lien claims and also set forth that "[i]f requested by Owner [Knoll], Contractor [Sordoni] shall, at Owner's cost, provide surety bond or bonds (a) to assure the timely performance of the Work in full compliance with the Final Drawings and Specifications for the Project and (b) to assure that all labor, materials, equipment and supplies incorporated into the Work or employed in connection therewith will be paid for in full. Such surety bond or bonds will be issued by sureties, in amounts and on terms acceptable to Owner and in compliance with the laws of the State of Pennsylvania."

On October 28, 1983, in anticipation of the execution of the contract, Knoll and Sordoni made a stipulation barring lien claims against the property by Sordoni and any subcontractor, materialman, workman or any other person for any labor or material supplied on the project. This stipulation was filed in the office of the Montgomery County Prothonotary on November 2, 1983, apparently pursuant to section 402 of the Pennsylvania Mechanics' Lien Law of 1963, Pa.Stat.Ann. tit. 49, Sec. 1402 (Purdon 1965).

On November 21, 1983 Sordoni and United, respectively as principal and surety, executed a labor and material payment bond binding themselves jointly and severally to Knoll for $14,700,000. The condition of the bond, which incorporated the Knoll-Sordoni contract, was that if Sordoni "shall promptly make payment to all claimants as hereinafter defined, for all labor and material used or reasonably required for use in the performance of the Contract, then this obligation shall be void; otherwise it shall remain in full force and effect...." A claimant was defined in the bond as a person with a direct contract with the principal on the bond, i.e., Sordoni, or with a subcontractor of the principal, for labor and material used or reasonably required for performance of the contract. The bond further provided that the principal and surety agreed jointly and severally that every unpaid claimant "may sue on this bond for the use of the claimant, prosecute the suit to final judgment for such sum or sums as may be justly due claimant, and have execution thereon. The owner, [Knoll] shall not be liable for the payment of any costs or expenses of any such suit."

On September 13, 1984 Sordoni and W.J. Ambrose, Inc. entered into a subcontract incorporating the Knoll-Sordoni contract and providing for Ambrose to perform the heating, ventilating and air conditioning work on the Knoll project. The Sordoni-Ambrose subcontract included Article 19.1 which provided that:

ASSIGNMENT AND SUBCONTRACTING.

Neither this Agreement nor any monies due or to become due hereunder shall be assignable without the prior written consent of the Contractor [Sordoni] nor shall the whole or any part of the Work be subcontracted without like prior written consent. Any such assignment or subcontracting without such prior written consent shall be void and of no effect and shall vest no right or right of action in the assignee or sub-subcontractor against the Contractor. The Contractor's consent to any assignment or subcontracting shall not relieve the Subcontractor [Ambrose] of any of its agreements, duties, responsibilities or obligations under this Agreement and the other Contract Documents and the Subcontractor shall be and remain as fully responsible and liable for the defaults, neglects, acts and omissions of its assignees and sub-subcontractors and all persons directly or indirectly employed by them as it is for its own defaults, neglects, acts and omissions and those of its own officers, servants and employees. The Sub-contractor shall bind each of its permitted sub-subcontractors to all of the terms, provisions and covenants of this Agreement and the other Contract Documents with respect to permitted subcontracted portions of the Work. The Contractor's consent to any subcontracting shall not be deemed to create any contractual or third party beneficiary relationship between the Contractor and any sub-subcontractor to whom the Work, or any portion thereof, is subcontracted, and shall not vest any right or right of action in such sub-subcontractor against the Contractor or the Owner [Knoll].

On October 18, 1984 Ambrose entered into a sub-subcontract with Knecht to perform sheet metal work on the Knoll project. The Ambrose-Knecht contract incorporated the Sordoni-Ambrose contract which was referred to as the "principal contract" and provided that Knecht was bound by the provisions of the principal contract. ¹

The parties agree that work went forward on the project and payments were made to Sordoni by Knoll which in turn paid Ambrose. Ambrose, however, defaulted in its obligations to Knecht by failing to pay $134,784 due Knecht even though Ambrose requested and received payment for Knecht's work. Ultimately, Knecht and three other creditors of Ambrose filed an involuntary petition in bankruptcy against Ambrose.

On May 1, 1986 Knecht brought this diversity action under Pennsylvania law against United on the bond. The parties filed cross-motions for summary judgment and on October 9, 1987 the district judge, apparently without opinion, entered an order denying United's motion and granting Knecht's. The order also recited "that judgment is entered in favor of the plaintiff and against the defendant." United then moved under Fed.R.Civ.P. 59(e) to alter or amend the judgment but this motion was denied by order of November 18, 1987 which also provided that United was to pay Knecht $134,784 with interest and that a hearing would be later held to assess attorney's fees. ² On December 7, 1987 the judge took testimony on the issue of attorney's fees. On March 16, 1988 the judge entered an order for $48,432.84 for attorney's fees, the order reciting that it was predicated on the language of the bond allowing for recovery for all "sums ... justly due." Thus, in the judge's view unless Knecht's fees were allowed Knecht "would not be made whole" and would not recover all sums justly due. This appeal followed.

Leaving aside the award of attorney's fees, it might be wondered on the basis of our recitation what issue could be raised by United on this appeal. It is, after all, clear that United and Sordoni in the bond agreed with Knoll that a claimant could bring an action against them jointly or severally on the bond for labor and materials supplied on the project. There is no doubt that Knecht performed the services and supplied the materials for which it seeks recovery and is a claimant as defined in the bond, as it had a sub-subcontract with Ambrose which was a subcontractor of Sordoni. United does not contend otherwise nor does it challenge Knecht's computation of its claim or suggest that Knecht is procedurally barred from bringing this case. While it is true that Knecht as a sub-subcontractor was precluded by the contract documents from asserting a lien against the property and, along with other possible claimants, as a matter of law by the filing of the stipulation against liens in the prothonotary's office, nothing in the bond in any way conditioned a claimant's right to claim under it on its right to assert a lien. ³ Finally, while the Sordoni-Ambrose agreement limited the right of a sub-subcontractor to make a claim against Sordoni, this agreement made no reference to the bond and by its express terms never prejudiced the right of a sub-subcontractor to bring an action against United.

Accordingly, the facts seem to point to the same result as that reached in Pennsylvania Supply Co. v. National Casualty Co., 152 Pa.Super. 217, 31 A.2d 453 (1943). There the Superior Court of Pennsylvania held that a materialman could bring an action against a surety on a bond in which a building contractor was the principal and the owner was the obligee, inasmuch as the bond incorporated the building contract and the contract required that the contractor-principal pay for the materials used on the project. The court observed that "[w]hat may have prompted the obligee to require protection for third parties, also is unimportant. She was protected by the stipulation against liens and her motives may...