Cecil Twp. Mun. Auth. v. N. Am. Specialty Sur. Co.

• Citation: 836 F.Supp.2d 367
• Decision Date: 15 December 2011
• Docket Number: Civil Action No. 11–608.
• Parties: CECIL TOWNSHIP MUNICIPAL AUTHORITY, Plaintiff, v. NORTH AMERICAN SPECIALTY SURETY COMPANY, Defendant/Third Party Plaintiff, v. Edward T. Sitarik Contracting, Inc., Bella Enterprises, Inc., Edward T. Sitarik and Karrie A. Sitarik, Third–Party Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

836 F.Supp.2d 367

CECIL TOWNSHIP MUNICIPAL AUTHORITY, Plaintiff,

v.NORTH AMERICAN SPECIALTY SURETY COMPANY, Defendant/Third Party Plaintiff,

v.Edward T. Sitarik Contracting, Inc., Bella Enterprises, Inc., Edward T. Sitarik and Karrie A. Sitarik, Third–Party Defendants.

Civil Action No. 11–608.

United States District Court, W.D. Pennsylvania.

Dec. 15, 2011.

Jeff A. Hollowood, Gaitens, Tucceri & Nicholas, P.C., Pittsburgh, PA, for Plaintiff.

John Hilser, Paul T. Devlieger, Devlieger Hilser, P.C., Philadelphia, PA, Brian A. Lawton, Smith Butz LLC, Canonsburg, PA, for Defendant/Third Party Plaintiff.

MEMORANDUM OPINION

WILLIAM L. STANDISH, District Judge.

Pending before the Court are two motions by the Cecil Township Municipal Authority (“the Authority”), seeking to dismiss with prejudice certain counterclaims brought by North American Specialty Insurance Company ¹ (“North American”) (Doc. No. 7) and by Third Party Defendants Edward T. Sitarik Contracting, Inc., Bella Enterprises, Inc., Edward T. Sitarik, and Karrie A. Sitarik (Doc. No. 15.) For the reasons discussed below, both Motions are granted.

I. BACKGROUNDA. Factual History²

On July 13, 2006, Plaintiff Cecil Township Municipal Authority awarded three publicly bid contracts (“the Contracts”) to a local construction company, Edward T. Sitarik Contracting, Inc. (“Sitarik.”) The Contracts covered a major public works project referred to as the Millers Run Sanitary Sewer Project (“the Project”), and consisted of a Southeast Collector Contract, a Southwest Collector Contract, and an Interceptor Contract. The Authority maintains that at all times, it performed its obligations under the Contracts and was never in default.

Under the terms of the Contracts, Sitarik was required to complete all three parts of the Project by September 17, 2007. When it failed to meet this deadline, it requested and was granted an extension until October 27, 2007, to complete the Southeast Collector Contract and until October 29, 2007, to complete the Interceptor Contract; the Contract for the Southwest Collector was not extended after the original deadline. The work was not completed by those dates and, in fact, had not been completed as of April 14, 2008, when Sitarik proposed a new completion date of June 13, 2008. The Authority rejected this new date and never agreed to any further extensionsafter the September/October 2007 dates.

Moreover, the Authority alleges, the work that had been completed by Sitarik failed to meet the plans and specifications set forth in the Contracts. Briefly summarized, 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, fences, and shrubbery) disturbed by the work performed;

properly clean and flush the sewer lines to remove debris upon completion of the Project;

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 fact three out of ten did not;

install lines between the manholes according to the specifications in the Contracts;

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. § 191 et seq., Sitarik had been required to post Performance Bonds (“the Bonds”) in the amount of $7,352,693.45, that is, 100% of the three Contract prices. These Bonds were provided by North American, which by doing so, jointly and severally bound itself with Sitarik as an obligee for completion of the Project. According to the Authority, 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 [Authority] 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 amount not to exceed [$7,352,693.45.]

(Complaint, ¶ 64.)

According to the Authority, each of the construction deficiencies listed above, as well as the failure to complete the Project on time, was a material breach of the Contracts. On June 19, 2008, the Authority, acting pursuant to the Contracts, declared Sitarik in default. It timely notified North American of the default and requested that North American perform its obligations as set out in the Bonds. Despite repeated demands for performance, North American has neglected or refused to do so, 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 to remedy the deficiencies in Sitarik's work and complete the Project.

B. Procedural Background

The procedural history of this case is complicated somewhat by the fact that multiple counterclaims and a third-party complaint have been filed. We summarize each of these, identifying them by the parties involved.

1. Complaint by the Authority against North American and North American's counterclaims: Plaintiff filed suit in the Court of Common Pleas of Washington County on April 19, 2011, and served North American on the same date. On May 9, 2011, 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 in controversy greater than the statutory minimum, as required by 28 U.S.C. § 1332.³ The Authority did not object to removal.

On May 9, 2011, North American filed its answer to the Complaint, incorporating several affirmative defenses and two counterclaims. In the first counterclaim for breach of contract, North American alleges that contrary to the Authority's allegation in the Complaint that it was never in default of the Contracts, it had breached numerous obligations thereunder by failing to provide accurate information during the bidding process, adequate plans and specifications, accurate information during the prosecution of the work, proper inspections, and the required architectural and engineering support. (Doc. No. 4, Counterclaims, ¶ 3.) Moreover, despite having affirmed that the work under the Contracts was substantially complete in November and December 2007, the Authority failed or refused to release a total of $265,000 in contract balances and/or retainage. Pursuant to the terms of a General Indemnity Agreement dated October 6, 2003, between North American and Sitarik, Bella Enterprises, Inc., Edward T. Sitarik and Karrie A. Sitarik (“the Indemnity Agreement” and, collectively, “the Indemnity 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 overhead, and related costs. (Doc. No. 4, Counterclaims, ¶¶ 1–9.)

In Counterclaim II, North American alleges that by failing to pay the $265,000 in contract balances or retainage, despite having affirmed substantial completion of the work, the Authority has violated the Pennsylvania Prompt Pay Act, 62 Pa.C.S. §§ 3931–3939 (“the PPA.”) As a result of that violation, North American is entitled to interest on the unpaid contract balances and/or retainage as well as penalties, attorneys' fees, and costs as provided for in 62 Pa.C.S. § 3935. (Doc. No. 4, Counterclaims, ¶¶ 10–16.)

The Authority responded by filing the now-pending motion to dismiss with prejudice Counterclaim II, along with any requests for relief in Count I which might be attributed to the PPA, arguing that such claims are barred by the applicable statute of limitations,

2. North American's third-party complaint against the Indemnity Defendants: On May 23, 2011, North American filed a third-party complaint against the Indemnity Defendants. (Doc. No. 5, “Third–Party Complaint.”) North American alleged that in the Indemnity Agreement, 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, ¶ 5.)

In addition to the claim by the Authority for damages in the amount of $658,637.87 from Sitarik's alleged failure to timely complete the work required under the Contracts according to the specifications therein, North American also alleged that Mack Industries, Inc. (“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 with the Project. Despite notice from North American, the Indemnity Defendants have failed to perform their obligations under the Indemnity Agreement.

In Count I of the Third–Party Complaint, North American alleges the Indemnity Defendants have breached the Indemnity Agreement and seeks a total of $929,904.28, together with costs and attorneys' fees incurred as a result of its efforts in this lawsuit and the litigation brought by Mack.

In Count II, North American alleges that despite its demands, the Indemnity Defendants have failed to comply with...