Gito, Inc. v. Axis Architecture, P.C.

• Decision Date: 10 December 2021
• Docket Number: 225 WDA 2021
• Citation: 270 A.3d 1132 (Table)
• Parties: GITO, INC., d/b/a/ Nello Construction, as assignee of the claims of the Greater Latrobe School District, Appellants v. AXIS ARCHITECTURE, P.C.
• Court: Pennsylvania Superior Court

270 A.3d 1132 (Table)

GITO, INC., d/b/a/ Nello Construction, as assignee of the claims of the Greater Latrobe School District, Appellants

v.AXIS ARCHITECTURE, P.C.

No. 225 WDA 2021

Superior Court of Pennsylvania.

Argued November 10, 2021

Filed: December 10, 2021

Dean F. Falavolito, Carnegie, for appellant.

Peter F. Schwenker, Philadelphia, for appellee.

BEFORE: KUNSELMAN, J., KING, J., and COLINS, J.^*

OPINION BY COLINS, J.:

Gito, Inc., d/b/a/ Nello Construction (Nello), as assignee of the claims of the Greater Latrobe School District (School District), appeals from an order of the Court of Common Pleas of Westmoreland County (the trial court) sustaining preliminary objections in a breach of contract damages action that it brought against Axis Architecture, P.C. (Architect) and dismissing the action on the ground that an anti-assignment clause in the contract between School District and Architect barred assignment of claims for damages for breach of that contract. For the reasons set forth below, we reverse.

This action arises out of contracts entered into by School District for the construction of an elementary school (the project). Architect provided design and architectural services for the project pursuant to a contract that it and School District entered into on October 1, 2015. Complaint ¶5 & Ex. A. The contract between School District and Architect contained the following provision:

[School District] and Architect, respectively, bind themselves, their partners, successors, assigns and legal representatives to the other party to this Agreement and to the partners, successors, assigns and legal representatives of such other party with respect to all covenants of this Agreement. Neither [School District] nor the Architect shall assign this Agreement without the written consent of the other, except that [School District] may assign this Agreement to an institutional lender providing financing for the Project. In such event, the lender shall assume [School District's] rights and obligations under this Agreement. The Architect shall execute all consents reasonably required to facilitate such assignment.

Id. Ex. A at 11 Article 9.5 (emphasis added). Nello was the general trades prime construction contractor for the project under a March 2017 contract with School District. Complaint ¶14; Architect's Preliminary Objections ¶7; Plaintiff's Response to Architect's Preliminary Objections ¶7.

Delays occurred during the construction, and the project, which was to be substantially completed by August 3, 2018, was not substantially completed until November 28, 2018. Complaint ¶¶9, 13, 20, 23-24; Architect's Preliminary Objections ¶8; Plaintiff's Response to Architect's Preliminary Objections ¶8. Nello in February 2019 initiated an arbitration against School District in which it claimed that School District owed it over $1.5 million for work that it performed on the project and additional costs caused by project delays. Architect's Preliminary Objections ¶9; Plaintiff's Response to Architect's Preliminary Objections ¶9. School District contested Nello's claims against it and asserted a counterclaim for liquidated damages and other damages caused by the delayed completion of the project. Architect's Preliminary Objections ¶10; Plaintiff's Response to Architect's Preliminary Objections ¶10.

In February 2020, Nello and School District entered into a settlement under which School District paid Nello $831,000 and assigned Nello all of School District's claims against Architect and the project's construction manager for losses sustained by School District due to the delay in the completion of the project. Complaint ¶¶6, 29 & Ex. B. This settlement agreement provided that Nello would bear all costs of prosecuting the assigned claims, including attorney fees and expert fees, and that Nello would retain 85% of any settlement of the assigned claims and pay 15% of any such settlement to School District without any reduction for attorney fees or other costs of prosecuting the assigned claims. Id. Ex. B.

On April 14, 2020, Nello as School District's assignee brought this breach of contract action against Architect seeking to recover damages that School District suffered as a result of Architect's design and construction documents and Architect's coordination and management of the project. On April 24, 2020, Architect filed preliminary objections to Nello's complaint that included an objection that Nello lacked standing to bring suit as School District's assignee because Architect did not give any written consent to School District's assignment of its claims and the assignment was therefore prohibited by the contract between School District and Architect. On January 26, 2021, the trial court sustained this preliminary objection and dismissed the action with prejudice on the ground that the anti-assignment provision in the contract between School District and Architect invalidated School District's assignment of its damages claims to Nello. Trial Court Order, 1/26/21; Trial Court Opinion, 3/31/21.¹ This timely appeal followed.

Appellant presents the following single issue for our review:

Whether the Trial Court committed an error of law by holding that the language of Article 9.5 of the Contract prohibits another party from prosecuting the Greater Latrobe School District's claims.

Appellant's Brief at 4. This is a question of law as to which our review is plenary and de novo . Hospital & Healthsystem Association of Pennsylvania v. Department of Public Welfare , 888 A.2d 601, 607 n.12 (Pa. 2005) (whether preliminary objections were properly sustained is a question of law subject to plenary, de novo review); Rosiecki v. Rosiecki , 231 A.3d 928, 933 (Pa. Super. 2020) (contract interpretation is a question of law over which this Court's review is plenary and de novo ).

The issue in this appeal is a matter of first impression, as there is no Pennsylvania appellate precedent addressing whether an anti-assignment clause in a non-insurance contract that merely provides that neither party shall assign the contract or agreement or rights thereunder bars assignment of a post-performance claim for damages for breach of the contract.

Two decisions of our Supreme Court from the 1930s and 1940s involving construction contracts that had anti-assignment clauses, Nolan v. J. & M. Doyle Co. , 13 A.2d 59 (Pa. 1940) and Concrete Form Co. v. W. T. Grange Const. Co. , 181 A. 589 (Pa. 1935), have held or stated that an assignment of rights under a contract that prohibits assignment is void. Neither of those cases, however, involved application of a general prohibition on assignment of the contract or assignment of the agreement to an assignment of a post-performance claim.

In Nolan , the rights assigned in the parties’ agreement included the assignor's performance of services under the contract and the assignment was made before the contract work was performed. 13 A.2d at 60-61. In addition, the Court's statement concerning the effect of an anti-assignment clause was not part of its holding, as the defense based on the anti-assignment clause was in fact rejected because the defendant was the assignor and was not the party whose consent to assignment was required. Id. at 63.

In Concrete Form Co. , the Court held that an anti-assignment clause in a construction contract barred assignment of the right to payment after the construction was complete. The anti-assignment clause before the Court in Concrete Form Co. , however, did not merely prohibit assignment of the contract or agreement. Rather, it specifically provided that the assignor "would not ‘sub-let any portion of the work of this contract or * * * hypothecate, pledge or assign any payments thereunder except by and in accordance with the consent of [the] contractor.’ " 181 A. at 589 (emphasis added) (brackets and ellipses in original). Here, the anti-assignment provision prohibits only assignment of "this Agreement" and does not reference payments, claims for damages, or any post-performance claims. Complaint Ex. A at 11, Article 9.5.²

More recent decisions of our Supreme Court and this Court have rejected contentions that anti-assignment clauses bar assignment of rights to payment and claims for damages under insurance contracts. In Egger v. Gulf Insurance Co. , 903 A.2d 1219 (Pa. 2006), the Supreme Court held that an anti-assignment clause in an insurance policy that prohibits assignment of "rights and duties under this policy" without the insurer's written consent does not bar post-loss assignment of claims for payment of insurance coverage because a post-loss assignment does not alter the risk that the insurer agreed to insure. Id. at 1220, 1222-29. In Chiropractic Nutritional Associates, Inc. v. Empire Blue Cross & Blue Shield , 669 A.2d 975 (Pa. Super. 1995), this Court held that an anti-assignment clause in a group medical insurance policy providing that "[t]he right of a Member to receive payment is not assignable" did not bar assignment of a cause of action for failure to pay benefits and prosecution of the claim by the assignee. Id. at 982-84. Neither of these decisions resolves the question before us, however, because the Court in Egger based its ruling not only on the purpose of the anti-assignment clause, but also on the conclusion that an insurance policy prohibition of assignment of post-loss claims is void as against public policy and Chiropractic Nutritional Associates, Inc. was decided under federal law, not Pennsylvania law. Egger , 903 A.2d at 1224-25 ; Chiropractic Nutritional Associates, Inc. , 669 A.2d at 978-80. Because our case law has not addressed the issue here, we look to authorities outside our Commonwealth for their persuasive value. Newell v. Montana West, Inc. , 154 A.3d 819, 823 & n.6 (Pa. Super. 2017).

Courts throughout the country have repeatedly held that anti-assignment clauses that prohibit assignment of the contract or agreement or prohibit assignment of rights or interests under...