Court Opinion

ID: 804194
Source: CourtListenerOpinion
Date Created: 2012-07-12 16:44:40+00
Date Added: 2024-06-11T15:26:13.906898
License: Public Domain

NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                   ______

                                     No. 11-3343
                                       ______

         COMMUNITY ASSOCIATION UNDERWRITERS OF AMERICA,
        A/S/O Park View at Waverly, A Condominium C/O/ PMI Management
                                           Appellant

                                           v.

                   RHODES DEVELOPMENT GROUP, INC., et.al.
                                 ______

                   On Appeal from the United States District Court
                         for the Middle District of Pennsylvania
                           (District Court No. 1-09-cv-00257)
                   District Court Judge: Honorable Sylvia H. Rambo
                                         ______

                   Submitted Pursuant to Third Circuit LAR 34.1(a)
                                   July 11, 2012

              Before: RENDELL, GARTH and BARRY, Circuit Judges.

                                 (Filed: July 12, 2012)

                                        ______

                             OPINION OF THE COURT
                                     ______

GARTH, Circuit Judge.

      On December 1, 2005, Waverly Woods Associates (“Waverly Woods”) entered

into a construction contract with defendant Rhodes Development Group (“Rhodes”).

Rhodes agreed to serve as the general contractor to build a number of townhouse

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condominiums on Waverly Woods’ land. The construction contract included a clause

entitled “Waivers of Subrogation,” which provided in relevant part that:

         The Owner [Waverly Woods] and Contractor [Rhodes] waive all rights
         against . . . each other and any of their subcontractors, sub-subcontractors,
         agents and employees, each of the other . . . for damages caused by fire or
         other perils to the extent covered by property insurance applicable to the
         Work . . . .

After the construction contract was executed, Rhodes subcontracted with a number of

other entities, including defendant Adams Drywall, who agreed to install the

condominiums’ drywall. Adams Drywall entered into an oral subcontract with defendant

Pedro Quintero (“Quintero”) to perform the labor for the drywall installation.

         On May 24, 2007, Waverly Woods created a condominium association called

“Park View at Waverly” (“Park View”), and transferred the condominiums and land to

Park View. Park View thereafter obtained an insurance policy issued by the plaintiff,

Community Association Underwriters of America (“CAUA”), to cover the condominium

units.

         On March 4, 2008, a fire at Park View damaged several condominiums. Park

View submitted a claim for damages to CAUA, which paid the claim. CAUA

subsequently sought to recover the insurance payments from the parties it claimed were

responsible for the fire. CAUA filed a complaint asserting claims for both negligence

and breach of contract against Rhodes, Adams Drywall, and Quintero. In its complaint,

CAUA alleged that the fire was caused by the negligent placement and handling of

propane heaters used during the installation of the drywall. CAUA also claimed that this

                                               2
negligence “breached the express and implied terms of the contract[s]” between Waverly

Woods and Rhodes, as well as between Rhodes and the subcontractors.

       On March 25, 2011, CAUA sought to amend its complaint to remove the breach of

contract claims and deleted from the Amended Complaint all allegations that Park View

was a third-party beneficiary to the contracts. On April 13, 2011, the District Court

granted the motion to amend. Thereafter, CAUA’s complaint alleged one cause of action

against Rhodes for negligence and one cause of action against Adams Drywall and

Quintero for negligence. In their answers, the defendants crossclaimed against one

another.

       On April 27, 2011, following CAUA’s amendment of its complaint, the

defendants filed amended motions for summary judgment based upon the waiver of

subrogation, arguing that Park View was an intended third-party beneficiary of the

construction contract. The District Court ultimately granted summary judgment,

concluding that Park View and CAUA were intended third party beneficiaries of the

contract, and were therefore bound by the waiver of subrogation clause. CAUA

appealed. No mention appeared in the District Court’s opinion as to the negligence

counts in the Amended Complaint.

                                                 I.

       The District Court had jurisdiction pursuant to 28 U.S.C. § 1332, and this Court

has jurisdiction under 28 U.S.C. § 1291. We exercise plenary review over a district

court’s grant of summary judgment, viewing all evidence in favor of the non-moving

party and resolving all doubts in that party’s favor. S.E.C. v. Hughes Capital Corp., 124

                                             3
F.3d 449, 452 (3d Cir. 1997). Summary judgment should not be granted if the non-

moving party produces evidence that “could be the basis for a jury finding in that party’s

favor.” Kline v. First Western Gov’t Sec., 24 F.3d 480, 485 (3d Cir. 1994). Similarly,

summary judgment should not be granted unless “legal theory or doctrine supports the

movant’s position that judgment should be entered.” 10A CHARLES ALAN WRIGHT &

ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 2725.

                                               II.

       On appeal, the parties dedicated the whole of their briefs to the applicability of the

waiver of subrogation clause—CAUA argues that it is not an intended third party

beneficiary,1 and thus is not subject to the waiver clause. Rhodes, Adams Drywall, and

Quintero argue the reverse.

       It is established law in this Circuit that “a third party beneficiary will only be

bound by the terms of the underlying contract where the claims asserted by that

beneficiary arise from its third party beneficiary status.” E.I. DuPont de Nemours & Co.

v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 197 (3d Cir. 2001).

As a consequence, the waiver of subrogation clause only applies to CAUA (a non-party

to the contract) to the extent that it asserts claims arising under that contract.

       Our review of CAUA’s Amended Complaint reveals that it is no longer making

any contract claims—to the contrary, both counts alleged in its Amended Complaint are

styled as counts of negligence, and both counts sound exclusively in the tort law of

1
  In its original complaint, CAUA asserted that it was an intended third party beneficiary
to the contract between Rhodes and Waverly Woods.
                                               4
negligence.2 We are therefore compelled to conclude that CAUA’s status as an intended

third party beneficiary of the original contract is not relevant to the disposition of the

present matter. The waiver of subrogation did not waive CAUA’s claims of negligence,

and it is only claims of negligence which CAUA has alleged.

                                              III.

       In disposing of this matter on the basis of the waiver of subrogation, the District

Court declined to consider the defendants’ motions for summary judgment based on

spoliation of evidence or a deficient expert report,3 both of which pertain to negligence

causes of action which have no relevance to the claims of contract argued by the parties.

       Inasmuch as it was error to grant summary judgment on the basis of the waiver of

subrogation, the District Court must now consider those motions before proceeding to the

merits of CAUA’s claims of negligence, and, if necessary, the defendants’ crossclaims.

       Accordingly, we will vacate the District Court’s order of July 29, 2011 and

remand for further proceedings consistent with this opinion.4

2
 Count 1 seeks recovery from Rhodes for monies which CAUA paid to Waverly;
Count 2 seeks recovery from Adams Drywall and Quintero for the same monies.
3
  In footnote 2 of its opinion, the District Court stated that “[t]he parties submitted
numerous additional facts in connection with Defendants’ motions for summary
judgment based on spoliation and a deficient expert report, including a time line detailing
the alleged events on the days following the March 4, 2008 fire. Many of these facts,
however, are not relevant to Defendants’ waiver of subrogation argument. For clarity of
the record, the court will only recite facts related to Defendants’ waiver argument.” See
CAUA v. Rhodes, et.al., No. 1:09-CV-0257, (M.D.Pa. July 29, 2011), n.2.
4
  Federal Rule of Appellate Procedure 30, “Appendix to the Briefs” requires that “. . . the
relevant portions of the pleadings . . .” must be included in the appendix. Neither the
original complaint nor the Amended Complaint, which is essential to the resolution of
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this appeal, was included in the appendix. It is unacceptable that counsel is not familiar
with and did not comply with the basic rules of appellate procedure.
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RENDELL, Circuit Judge, concurring

       It is unclear to me whether the third party beneficiary question should be the basis

for the District Court’s dismissal of the case. Clearly, the Majority believes that it should

not. We need not resolve this issue, however, because I agree with the Majority that

CAUA’s claims for negligence should proceed. Whether or not the third party

beneficiary question controls, the result is the same: the dismissal was not appropriate. I

write separately to explain why this is so if the third party beneficiary principles do apply.

       Pennsylvania has adopted the Restatement (Second) of Contracts test for

determining whether a party is an intended third party beneficiary. See Guy v.

Liederbach, 459 A.2d 744, 751 (Pa. 1983). According to that test, a party is an intended

third party beneficiary when “recognition of a right to performance in the beneficiary is

appropriate to effectuate the intention of the parties” and, in relevant part, the

circumstances “indicate that the promisee intends to give the beneficiary the benefit of

the promised performance.” Rest. (2d) of Contracts § 302(a). If the parties’ intent to

benefit a third party is not express in the contract, there must be “circumstances that are

so compelling” before we recognize a third party beneficiary as an intended one.

Scarpitti v. Weborg, 609 A.2d 147, 150 (Pa. 1992).

       There is insufficient evidence, in the terms of the contract and in the circumstances

surrounding its making, demonstrating that Waverly Woods and Rhodes intended to

benefit Park View. The only evidence in the contract itself that might suggest an intent to

benefit Park View is Article 2, captioned “The Work of this Contract.” Article 2

describes the scope of work of the contract as “Construction of ninety-one (91)

                                               1
townhouse condominium units including all related site work for the project known as

Parkview @ Waverly – Phase 7.” (App. 65a.) The District Court reasoned that, because

the parties were building condominiums, they therefore intended that a condominium

association be formed. Accordingly, the parties must have intended to benefit Park View.

While the District Court’s inferences in this regard are logical, they are not evidence of

intent. Instead, we must look to the terms of the contract and the circumstances

surrounding its making to determine whether the parties evidence an intent to benefit a

third party.

       In Lake Placid Club Attached Lodges v. Elizabethtown Builders, Inc., 521

N.Y.S.2d 165, 166 (N.Y. App. Div. 1987), the plaintiff, an unincorporated joint venture

comprised of owners of residential condominium units, sued the builder of the

condominium for breach of the contract between the developer and the builder. Applying

the test set forth in § 302 of the Restatement, the court held that the joint venture was not

an intended beneficiary of the contract between the developer and builder because there

was no evidence from the “contractual language or other circumstances manifesting a

mutual intent of the contracting parties to confer rights to performance on the ultimate

owners of the units.” Id. The court continued, “indeed, there is nothing whatsoever in

the record to suggest that the developer had in mind anything but the normal business

motive to obtain a construction project of sufficient quality for ready marketability of the

condominium units to potential customers.” Id. I believe that the same is true here.

       Indeed, the contract actually evidences an intent not to benefit Park View. The

contract states that “The Contract Documents shall not be construed to create a

                                              2
contractual relationship of any kind (1) between the Architect and Contractor, (2)

between the Owner and a Subcontractor or Sub-subcontractor or (3) between any persons

or entities other than the Owner and Contractor.” (App. 78a.) The District Court rejected

CAUA’s argument regarding this provision based on Vaughn, Coltrane & Associates v.

Van Horn Construction, Inc., 563 S.E.2d 548 (Ga. App. 2002), which held that,

notwithstanding a similar provision disclaiming the creation of any contractual

relationships, the contracting parties may still intend to benefit a third party. Vaughn is

distinguishable, however, because there, the consultants seeking third party beneficiary

recognition relied on language elsewhere in the contract which explicitly provided a right

of indemnification to the consultants. See id. at 550. Here, there is no other language in

the contract upon which the Park View could rely to claim third party beneficiary status.

       More importantly, we have held that a “no contractual relationship” clause is

evidence of the contracting parties’ intent not to create any third party beneficiaries. In

Pierce Associates, Inc. v. Nemours Foundation, 865 F.2d 530, 537 (3d Cir. 1988), we

reasoned that a nearly-identical disclaimer “is a strong indication of an intent” not to

benefit a third party. In holding that the plaintiff was not an intended third party

beneficiary of the subcontract, we emphasized that in construction contracts, “the owner

is the one who ultimately benefits from its performance. However, this does not create a

third party beneficiary relationship.” Id.; see also Dick Anderson Constr., Inc. v. Monroe

Constr. Co., 221 P.3d 675, 686 (Mont. 2009) (viewing a similar disclaimer as

“preclud[ing] anyone . . . from claiming third-party beneficiary status under the

contract.”); Yaffe v. Scarlett Place Residential Condo., Inc., -- A.3d -- , 2012 WL

                                              3
1998066 (Md. Ct. Spec. App. 2012) (viewing “no contractual relationship” disclaimer as

evidence that contracting parties did not intend to confer third party beneficiary status on

condominium unit owner who sought to enforce contract between condominium

developer and contractor).

       Moreover, the District Court erred in considering the Declaration of Condominium

filed by Waverly Woods pursuant to 68 Pa. C.S. § 3201 as evidence of the parties’ intent

to benefit Park View. Whether parties intend to benefit a third person must be “within

the contemplation of the promisor and the promisee at the time of contracting.”

Scarpitti, 609 A.2d at 151 (emphasis added). The Declaration of Condominium was

executed over a year after Rhodes and Waverly Woods entered into the contract, and is

evidence only of Waverly Woods’ intent.

       In sum, the lack of evidence showing an intent to benefit Park View, coupled with

the “no contractual relationship” disclaimer, compels our conclusion that Park View is

not an intended third party beneficiary to the contract. Therefore, the waiver of

subrogation does not apply to CAUA’s claims. Accordingly, I agree that we should

vacate the judgment of the District Court.

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