Court Opinion

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Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

7-11-2005

First Indemnity Amer v. Tiedeken
Precedential or Non-Precedential: Non-Precedential

Docket No. 03-4354

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                                                     NOT PRECEDENTIAL
                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT

                                       No: 03-4354

            FIRST INDEMNITY OF AMERICA INSURANCE COMPANY

                                              v.

              HERBERT J. TIEDEKEN, JR.; SARAH ANN TIEDEKEN;
                KEYSTONE STATE PAINTING COMPANY, INC.,
                                          Appellants
                           ______________________________

                       Appeal from the United States District Court
                         for the Eastern District of Pennsylvania
                                 (D.C. No. 99-cv-01887)
                            District Judge: Petrese B. Tucker

                       Submitted Under Third Circuit LAR 34.1(a)
                                 on September 27, 2004

                  Before: ROTH, BARRY and GARTH, Circuit Judges

                                   (Filed: July 11, 2005)

                                        OPINION
                                    _______________

ROTH, Circuit Judge:

       Herbert J. Tiedeken, Jr., Ann Tiedeken, and Keystone State Painting Company,

Inc. (collectively “Tiedeken”), appeal those portions of an order of the District Court
holding (1) that Tiedeken is liable to First Indemnity of America Insurance Corporation

(“FIA”) for the attorneys’ fees FIA incurred in defending a claim brought by Cornell and

Company against FIA and (2) that the Settlement Agreement (“SA”) between Tiedeken

and FIA precludes Tiedeken from bringing its counterclaim. Tiedeken also asks us to

reverse, or in the alternative vacate and remand, the attorneys’ fee-award for the current

litigation because the award was not properly apportioned. We will affirm the District

Court’s Order with regard to the attorneys’ fee-award in the Cornell lawsuit and the

dismissal of Tiedeken’s counterclaim. We will also affirm the award of attorneys’ fees

incurred in the current litigation.

I. Facts and Procedural Background

       Tiedeken entered into an Indemnity Agreement (“IA”) with FIA. Under the IA,

FIA was to issue surety bonds to Tiedeken’s businesses, including Muratone Company,

Inc., for painting projects on which those businesses were subcontractors. This case

involves two of those projects: the DePaul Project1 and the Cornell Project.2

       In the DePaul Project, FIA settled with several subcontractors that had sued FIA

for labor and equipment for which Muratone failed to pay. Tiedeken entered a

settlement agreement with FIA to resolve FIA’s claim against Tiedeken for

   1
    The DePaul Project involved painting work that Muratone was to perform under
subcontract for Tony DePaul and Sons, Inc.
   2
    The Cornell Project involved painting work that Muratone was to perform under
subcontract for Cornell and Company.

                                            -2-
indemnification of FIA’s cost of settlement with the subcontractors. The SA called for

Tiedeken to make installment payments to FIA totaling $100,000.

       In the Cornell Project, FIA successfully defended a cause of action brought by

Cornell for losses Cornell incurred when it terminated Muratone as a subcontractor. A

Bankruptcy Court found that Cornell did not have the right to enforce the suretyship

agreement against FIA because Cornell never accepted the surety bonds issued by FIA.

See First Indem. of Am. Ins. Co. v. Tiedeken, No. 99-1887, slip op. at 12-13 (E.D. Pa.

July 17, 2001) (citing Cornell & Co., Inc. v. First Indem. of Am. Ins. Co., No. 95-CV-

5782 (E.D. Pa. July 11, 1996)). FIA then brought this suit against Tiedeken in District

Court, claiming that Tiedeken must indemnify FIA for the costs of defending the Cornell

lawsuit.3 Tiedeken brought a counterclaim for wrongful failure to satisfy and release the

mortgage on Tiedeken’s Tennis Avenue property, in violation of 21 P.S. § 681 (2004).

       The District Court found that Tiedeken must indemnify FIA for the cost of the

Cornell lawsuit and that the SA precluded Tiedeken’s counterclaim. The District Court

also held that Tiedeken was liable to FIA for the attorneys’ fees FIA incurred in this

case. In a July 17, 2001, Order, the District Court required FIA to submit sworn

affidavits that set forth the fees incurred in the current litigation. Tiedeken appealed.

   3
    FIA also sued Tiedeken to recover (1) the legal fees it incurred in suing Tiedeken to
enforce the SA; (2) the legal fees it incurred in monitoring Muratone’s bankruptcy
proceedings; and (3) the costs of the lawsuit FIA brought against DePaul to recover
monies DePaul owed Muratone. As the parties have failed to raise any issues regarding
these rulings of the District Court, we will not address them.

                                             -3-
We dismissed Tiedeken’s appeal because the July 17 Order was not a final one. On

October 10, 2003, the District Court held that Tiedeken was liable to FIA for attorneys’

fees in this case in the amount of $33,160.13.4 Tiedeken again appealed.

II. Jurisdiction and Standard of Review

        The District Court had diversity jurisdiction over this case pursuant to 28 U.S.C. §

1332. The parties were completely diverse and the amount in controversy exceeded the

$75,000 requirement. We have appellate jurisdiction pursuant to 28 U.S.C. §§ 1291 and

1294.

        The attorneys’ fee-award claim in the Cornell lawsuit involved the District

Court’s construction of the IA.5 We give plenary review to a trial court’s construction of

a contract. See Ram Constr. Co., Inc. v. Am. States Ins. Co., 749 F.2d 1049, 1053 (3d

Cir. 1984). The District Court’s determination that the SA precluded Tiedeken’s

   4
     The October 10, 2003, Order also states that Tiedeken is to pay FIA $7,693.58 for
attorneys’ fees and costs that FIA incurred in defending Tiedeken’s untimely appeal of
the July 17, 2001, Order,plus $7,253.01 in interest.
   5
     Contract construction occurs when a court determines the legal effect that a contract
has on an unforeseeable event. See Ram Constr. Co., Inc. v. Am. States Ins. Co., 749
F.2d 1049, 1053 (3d Cir. 1984). In this case, the District Court gave legal effect to the
IA, holding that the fact that Cornell failed to accept the surety bonds issued by FIA did
not effect the indemnity agreement between FIA and Tiedeken. The District Court held
that Tiedeken was still responsible for reimbursing FIA for its legal costs in defending
Cornell’s lawsuit against it because that lawsuit stemmed from the fact that FIA issued
surety bonds to Muratone. The issue was whether Tiedeken had an obligation to FIA if
the obligee did not accept the bonds. Such a determination gave legal effect to the IA in
an unforeseeable event.

                                             -4-
counterclaim involved the interpretation of the SA.6 We review a trial court’s

interpretation of a contract for clear error. See id. The standard of review applied to a

district court’s attorneys’ fee-award is one of discretion. See Pawlak v. Greenawalt, 713

F.2d 972, 977 (3d Cir. 1983) (quoting Lindy Bros. Bldrs., Inc. of Phila. v. Am. Radiat. &

Stand. Sanitary Corp., 540 F.2d 102, 115-16 (3d Cir. 1976) (Lindy II)).

III. Discussion

       A. Attorneys’ Fees in the Cornell Lawsuit

       Tiedeken claims that the doctrine of collateral estoppel prevents FIA from

bringing a claim for attorneys’ fees for the Cornell lawsuit because the Bankruptcy Court

that adjudicated the Cornell lawsuit held that a suretyship relationship never existed. See

Cornell & Co., Inc. v. First Indem. of Am. Ins. Co. (In re Muratone Co., Inc.), Bankr.

No. 93-10439F, slip op. at 21 (Bankr. E.D. Pa. Aug. 9, 1995). The doctrine of collateral

estoppel requires, inter alia, that “the issue decided in the prior adjudication must be

identical with the one presented in the later action.” Witkowski v. Welch, 173 F.3d 192,

   6
     There is a distinction between contract interpretation and contract construction. See
Ram Constr., 749 F.2d at 1052-53. Contract interpretation occurs when a court gives
meaning to the words of a contract. See id. at 1052. In this case, the District Court
determined that the counterclaims that Tiedeken raised in the two civil actions which the
SA resolved were the same counterclaim that Tiedeken raised in the present litigation.
Further, the District Court interpreted the language of the SA to preclude such
counterclaims because the SA expressly released “all claims and causes of action
‘including . . . all claims asserted by the Tiedekens against FIA in Civil Action Nos. 93-
2407 and 94-2620.’” Tiedeken, No. 99-1887, slip op. at 21. The District Court gave
meaning to these terms of the SA.

                                             -5-
199 (3d Cir. 1999). The Bankruptcy Court only addressed whether Cornell could

enforce the suretyship agreement against FIA. See Tiedeken, No. 99-1887, slip op. at

12-13. The Bankruptcy Court was never presented with the issue of whether FIA could

enforce the IA against Muratone. Therefore, the doctrine of judicial estoppel does not

apply to FIA’s claim against Muratone for attorneys’ fees in the Cornell lawsuit.

       In the alternative, Tiedeken claims it is not required to reimburse FIA because no

suretyship agreement existed with respect to the Cornell Project. Tiedeken is wrong.

Under Pennsylvania law, a surety contract between the principal and the surety is not

dependent upon the acceptance of the surety bonds by the obligee. See Trident Corp. v.

Reliance Ins. Co., 504 A.2d 285, 290 (Pa. 1986) (“[T]he surety contract is formed at the

time the surety’s offer is accepted by the principal, it may not be enforced by the obligee

against the surety unless accepted by the intended obligee within a reasonable time.”).

While a surety relationship did not exist between FIA, Muratone and Cornell, see In re

Muratone, Bankr. No. 93-10439F, slip op. at 21, FIA did issue surety bonds to Muratone,

which Muratone accepted.7 Upon Muratone’s acceptance of the bonds, a surety contract

was formed between Muratone and FIA. Under the IA, Muratone was required to

indemnify FIA for any expenses incurred as a result of FIA issuing surety bonds to

Muratone. Therefore, Tiedeken is liable for FIA’s attorneys’ fees in the Cornell lawsuit.

   7
     Tiedeken acknowledged that FIA “unquestionably ‘issued’” surety bonds to
Muratone. See Tiedeken, No. 99-1887, slip op. at 21 (citing First Indem. of Am. Ins. Co.
v. Tiedeken, No. 93-CV-2407 (E.D. Pa. 1993)).

                                            -6-
       B. The Tiedeken’s Counterclaim

       Based on Tiedeken’s Answers in Civil Action Numbers 93-2407 and 94-2620, we

conclude that the District Court’s decision was not clearly erroneous with regard to the

preclusion of Tiedeken’s counterclaim. The SA expressly precluded Tiedeken from

bringing any claim or cause of action that it brought previously in Civil Action Numbers

93-2407 and 94-2620. The District Court determined that Tiedeken could not bring its

counterclaim in the current litigation because Tiedeken had brought the same

counterclaim in the above stated civil actions. See Tiedeken, No. 99-1887, slip op. at

21-22. In its Answers to FIA’s Complaints in Civil Action Numbers 93-2407 and 94-

2620, Tiedeken asserted counterclaims against FIA, claiming that FIA failed to satisfy

the mortgage on the Tennis Avenue property. The SA precludes Tiedeken from bringing

claims raised in the prior civil actions. In those prior civil actions, Tiedeken raised

claims for satisfaction of the Tennis Avenue mortgage. In the current litigation,

Tiedeken raises a claim for satisfaction of the Tennis Avenue mortgage. Therefore, the

District Court’s conclusion that the SA precluded such claims was not clearly erroneous.8

   8
     Even if the District Court had not determinated that Tiedeken had previously brought
its counterclaim in the prior civil actions, the SA would still preclude Tiedeken’s
counterclaim. Under Pennsylvania law, a mortgagee must satisfy and discharge a
mortgage upon receiving full satisfaction and payment of all monies due on that
mortgage. See 21 P.S. § 681. But statutory protections can be waived through contract.
See Ramadan v. Chase Manhattan Corp., 229 F.3d 194, 203 (3d Cir. 2000). The SA
clearly states that Tiedeken released any claim or cause of action arising in connection
with the any surety bonds issued by FIA to Muratone. FIA held a mortgage in the Tennis
Avenue property as collateral for Tiedeken’s obligation to indemnify FIA. See Tiedeken,

                                             -7-
        Tiedeken also argues that it has no obligation to indemnify FIA because Cornell

never accepted the surety bonds.9 Without an obligation to FIA, Tiedeken argues that

satisfaction and release of the mortgage is required. As previously indicated, Cornell’s

failure to accept the surety bonds does not void the surety contract between FIA and

Muratone. Under the IA, Tiedeken must indemnify FIA for the attorneys’ fees FIA

incurred in the Cornell lawsuit. FIA held the Tennis Avenue mortgage as security for

indemnification of these fees. Because Tiedeken has not indemnified FIA for FIA’s

attorneys’ fees, FIA has not received full satisfaction and payment of all monies due on

the mortgage.

       C. Apportionment of Attorneys’ Fees

       The correct criteria for determining an attorneys’ fee-award are

                the number of hours spent on the litigation; the nature of the
                services involved; the value of the attorneys’ time based on a
                reasonable hourly rate; the contingent nature of success in
                the litigation; and “the extent, if any, to which the quality of
                an attorney’s work mandates increasing or decreasing the

No. 99-1887, slip op. at 20 (“FIA obtained a mortgage lien on the Tennis Avenue
property as collateral for all bonds issued under the IA, including bonds for the Cornell
and DePaul projects.”). Tiedeken’s counterclaim that FIA wrongfully failed to satisfy
and release the Tennis Avenue mortgage is a claim that arose in connection with the
bonds issued by FIA to Muratone. Therefore, under the terms of the SA, Tiedeken is
precluded from bringing its counterclaim.
   9
     Tiedeken relies on the Bankruptcy Court’s finding that FIA had a security interest in
the Tennis Avenue property in the event that FIA had to make “proper payments” in
connection with the surety bonds, and was then entitled to indemnification from
Tiedeken. Tiedeken argues that FIA could not make “proper payments” in connection
with the surety bonds because Cornell never accepted the bonds.

                                              -8-
              amount to which the court has found the attorney reasonably
              entitled.”

Pawlak, 713 F.2d at 977 (quoting Lindy I, 487 F.2d at 168). In this case, the District

Court was presented with detailed information supporting FIA’s request for attorneys’

fees and the District Court was also very familiar with the lengthy and complex

proceedings in this matter. We conclude, therefore, that the award was not an abuse of

discretion.

IV. Conclusion

       For the foregoing reasons, we will affirm the judgment of the District Court.

                                            -9-