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ALLIED FIRE & SAFETY EQUIP. CO. v. DICK ENTERPRISE

August 22, 1997

ALLIED FIRE & SAFETY EQUIPMENT COMPANY, INC., Plaintiff,
v.
DICK ENTERPRISES, INC. et. al., Defendants.



The opinion of the court was delivered by: JOYNER

 Joyner, J.

 August 22, 1997

 INTRODUCTION

 This diversity action concerns the construction of the Exhibit Hall building of the Pennsylvania Convention Center ("PCC") in Philadelphia, Pennsylvania. Dick Enterprises, Inc. ("Dick" or "Dick Enterprises") served as the general contractor and entered into a contract with the owner of the PCC, the Pennsylvania Convention Center Authority ("PCCA"). *fn1" Plaintiff Allied Fire and Safety Equipment Company ("Allied") was the subcontractor for installation of the fire protection systems in the Exhibit Hall. Plaintiff brought this complaint against Dick Enterprises and its sureties, American Casualty Company ("ACC") of Reading, Pennsylvania, and Continental Casualty Company ("CCC"), asserting claims for breach of contract, quasi-contract recovery, negligence and loss of bonding capacity. *fn2"

 Dick Enterprises then filed a Third-Party Complaint against the PCCA, and the PCCA in turn filed a Fourth-Party Complaint against several design professionals who were hired for the project. *fn3"

 After the parties conducted discovery, Dick Enterprises filed a summary judgment motion to dismiss the complaint filed against it by Allied. Defendant PCCA also filed a summary judgment motion to dismiss the Third-Party Complaint filed against it by Dick Enterprises. This memorandum resolves both motions.

 BACKGROUND

 In October 1990, the PCCA instituted a competitive bidding process in order to award the General Construction Contract ("the Prime Contract") for the construction of the Exhibit Hall Building of the PCC. Ultimately, Defendant Dick Enterprises was awarded the Prime Contract, a voluminous document which includes specifications for the work of the various subcontractors as well as Articles containing General and Supplementary Conditions.

 Dick Enterprises then engaged Allied as the subcontractor responsible for the sprinkler and fire safety systems, and they executed a subcontract (the "Subcontract") around April 4, 1991. The Subcontract in turn contained Articles and also incorporated certain sections of the Prime Contract, although, Allied did not execute a contract with the PCCA. Allied did, however, execute a performance bond with Fireman's Fund Insurance Company ("Fireman's Fund"), and Fireman's Fund became Allied's surety for the project.

 On April 1, 1991 Dick retained a firm to serve as scheduling consultant. Dick then gave the schedule to Allied and the other subcontractors, and after several drafts and input from the various subcontractors, the initial schedule was issued by Dick on August 28, 1991. Work commenced on the project sometime thereafter.

 At some point problems began to develop on the construction site and the project fell behind schedule. These problems apparently escalated, and in January 1993 Dick declared Allied to be in default and subsequently engaged another subcontractor to complete the job. Allied then declared bankruptcy in June 1993 and remained in bankruptcy until April 1994.

 After the bankruptcy proceedings ended, Allied filed this action against Dick, and Dick then asserted claims for indemnification against the PCCA.

 DISCUSSION

 I. Summary Judgment Standard

 This Court is authorized to grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Thus, the Court's task is not to resolve disputed issues of fact, but to determine whether there exist any material factual issues to be tried. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The summary judgment standard requires the moving party to show that it is so one-sided that it should prevail as a matter of law. Id. at 252. Nevertheless the non-moving party must raise more than a scintilla of evidence in order to overcome a summary judgment motion. Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989). Further, the non-moving party cannot survive a summary judgment motion by relying on unsupported assertions. Id.

 II. Dick Enterprises's Motion for Summary Judgment

 A. Count I - Breach of Contract

 Dick Enterprises argues that summary judgment should be granted in its favor on Allied's breach of contract claims because (a) Allied lacks standing to assert these claims because they were assigned to a third party, (b) Allied's claims are barred because Allied failed to comply with the Prime Contract's notice provisions, (c) Allied's claims are arbitrable and therefore non-justiciable in this forum, and (d) Allied's claim for sleeve-installation costs are barred because the contracts clearly require Allied to install sleeves.

 Allied in turn argues that (a) it has standing to litigate these claims because it, inter alia, did not assign its rights under the contracts, and, in any event, it received ratification of this lawsuit from Fireman's Fund, its purported assignee, (b) Dick Enterprises breached the contracts by causing delays and failing to schedule the work in an orderly fashion, (c) Dick Enterprises waived its right to insist that Allied adhere to the Prime Contract's notice provisions when it breached the Subcontract, (d) Dick Enterprises delayed the arbitration proceeding even when Allied was willing to arbitrate, and Dick therefore waived its right to arbitration, (e) Allied was not responsible to install the sleeves, and Dick Enterprises' insistence that it do so was a breach of contract, and (f) Dick improperly withheld funds from Allied claiming that they were liquidated damages. Each of these arguments is addressed below.

 1. Allied's Standing to Sue for Breach of Contract

 In sharp contrast to the vigor with which it argues for summary judgment on other grounds, Dick Enterprises devotes a couple of pages to claiming that Allied does not have standing to assert any claims against it in this action. Dick Enterprises argues that Allied assigned its rights under the contracts to Fireman's Fund in an indemnification agreement, and therefore that Fireman's Fund is the only party entitled to sue under the contract.

 Allied responds by first denying that it assigned its claims to Fireman's Fund, and then by claiming that in any event, Fed. R. Civ. P. 17 (a) allows for ratification by the real party in interest. Allied then claims that Fireman's Fund ratified Allied's commencement of this action in its settlement with Allied. See Pl's. Sur-reply Mem. in Supp. of Mot. in Opp. to Def.'s Mot. for Summ. Judg. Accordingly, Dick's argument fails. See Hancotte v. Sears, Roebuck & Co. 93 F.R.D. 845 (E.D.Pa. 1982) (ratification of lawsuit by party in interest permits suit to continue). *fn4"

 a. Notice Provisions

 According to Dick Enterprises, Allied made Change Order Requests ("CORs") to its work but failed to comply with the notice provisions related to the CORs. *fn6" Specifically, Dick Enterprises claims that Allied refused to supply additional documentation when it was requested to do so in order that Dick Enterprises and PCCA could approve or reject Allied's CORs.

 Allied responds by detailing all of its communication with Dick during the time that Dick was requesting additional documentation. Allied claims that it did not receive access to certain documents Dick possessed and that Allied needed these documents in order to detail its costs and submit such details to Dick. See Pl's. Mem. in Opp. to Def.'s Mot. for Summ. Judg. at 28-36. Allied then makes several legal arguments for this court to excuse its failure to comply with the notice provisions, namely, that (a) it was in bankruptcy from June 23, 1993 until April 14, 1994, and therefore it was not required to submit additional documentation during that time, and Dick Enterprises' attempts to void any CORs during that time were in violation of the Bankruptcy Code's automatic stay, (b) there is a factual dispute as to whether the notice provisions were modified, (c) Dick Enterprises and the PCCA waived the notice provisions, (d) Dick Enterprises and the PCCA had actual notice of all events and conditions that form the basis of Allied's claims, (e) strict compliance by Allied would have been futile, and (f) neither Dick Enterprises nor the PCCA suffered any prejudice since they had written notice of the delay.

 With regard to Allied's arguments about the automatic stay, we note that section 362 of the Bankruptcy Code generally acts to shield the debtor from actions of its creditors and third parties so that the bankruptcy estate is not impaired while the debtor seeks relief from the bankruptcy court. *fn7" Section 365 of the Bankruptcy Code allows the trustee of the bankrupt estate to decide whether it will accept or reject executory contracts. *fn8" An executory contract that is neither accepted or rejected is not assumed to have been accepted, because acceptance requires court approval. In Re University Medical Center, 973 F.2d 1065, 1077 (3d. Cir. 1992). In addition, during the period in which the debtor has neither accepted nor rejected the contract, the terms of the contract are temporarily unenforceable against the debtor. Id. at 1075.

 However, section 365(d)(2) provides that a creditor may petition the court to compel the trustee to either assume or reject the contract within a specified time. *fn9" Since Dick Enterprises did not petition the court, and Allied did not expressly accept or reject the contract, the contract passed through the bankruptcy, In re Polysat, Inc, 152 B.R. 886 (E.D.Pa. 1993); In re Linda Day et. al., 208 B.R. 358 (E.D.Pa. 1997), and Allied was not required to comply with the notice provisions during bankruptcy. Furthermore, Dick Enterprises's decisions on Allied's change order requests were ineffective during the automatic stay. See e.g. In re Beverage Enterprises Inc., 1997 Bankr. LEXIS 431, NO. 97-13534 DAS, 1997 WL 177352, at *2 (E.D.Pa. April 7, 1997) (implying that even non-debtors actions vis-a-vis debtor could violate automatic stay since court held that when non-debtor violated notice provisions of contract with debtor and such violations occurred pre-petition, court had to lift stay to permit non-debtor to comply with notice provision).

 Furthermore, we note that contrary to Dick's assertion, it is unclear that Fireman's Fund was responsible for pursuing Allied's CORs and attempts to receive additional funds from Dick, and therefore the failure of Fireman's Fund to comply with the notice provisions when Allied was in bankruptcy is irrelevant. Moreover, the notice provisions were not incorporated in the indemnity agreement or performance bond between Allied and Fireman's Fund, and the parties have not pointed us to any language in either the Subcontract or the Prime Contract that requires Allied to ensure that its surety would pursue its claims against the contractor. See e.g. Van Cor, Inc., v. American Casualty Co., 417 Pa. 408, 208 A.2d 267 (Pa. 1965); Lite-air Products, Inc. v. Fidelity & Deposit Co. of Maryland et. al., 437 F. Supp. 801 (E.D.Pa. 1977) (holding that surety's obligations depend on bond language). Additionally, it is unclear that Fireman's Fund could assert claims on behalf of Allied without violating the bankruptcy principles delineated above.

 Nevertheless, we note there is at least one COR for which Dick requested documentation and for which Allied allegedly did not comply, even though Dick's request was made after Allied came out of bankruptcy. COR 717 was filed before Allied went into bankruptcy, but it was not until Allied came out of bankruptcy that Dick requested documentation. Allied therefore cannot use its bankruptcy as a defense. Thus, we will determine whether Allied was responsible for adhering to the notice provisions post-bankruptcy.

 Initially, we note that Allied fails to address the argument that even if Dick Enterprises had actual notice that Allied was pursuing claims against it, the purpose of the provision was to ensure that Dick Enterprises and the PCCA had all the relevant information to assess Allied's entitlement to additional funds. Moreover, the fact that Dick Enterprises and the PCCA may eventually have rejected Allied's claims does not explain Allied's failure to follow contractual provisions. In fact, the main case that Allied cites for the proposition that prejudice must be shown before notice provisions will be enforced is inapplicable. In Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (Pa. Super. 1977), the court held that the insured could sue his automobile insurance company even after failing to give notice within the time period required under the insurance contract unless the insurance company could show prejudice, but the court noted that this insurance contract was "not a negotiated agreement." Id. at 196. More importantly, the court noted that its prior cases dealing with insurance contracts had applied a "strict contractual approach" because "courts should not presume to interfere with the freedom of private contracts." Id.

 In addition, at least one court has strictly construed contractual provisions governing claims disputes, even though there was evidence that the defendant was aware of the dispute. In Envirex, Inc. v. Ecological Recovery Associates, Inc., 454 F. Supp. 1329, 1338 (M.D.Pa. 1978), the parties had a contract which required Envirex to supply and service equipment. The court held that a provision in the contract requiring written approval for repairs could be strictly enforced. In discussing the provision which required ERA, the buyer, to provide notice to Envirex before Envirex would be required to perform repairs, the court stated:

 
Even assuming that it was aware of the repairs, however, it was perfectly reasonable for Envirex to remain silent under the circumstances. ERA had an obligation under the contract to file a satisfactory proof of claim with Envirex and was aware of the fact that Envirex was not liable for any repairs unless they were authorized in writing. Envirex was under no duty to warn ERA that it would enforce the contractual provisions if ERA failed to make satisfactory proof of the claim or obtain written authorization for ...

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