United States District Court, Eastern District of Pennsylvania
August 30, 2001
EARTHDATA INTERNATIONAL OF NORTH CAROLINA, L.L.C. PLAINTIFF
STV INC., DEFENDANT, STV INC. THIRD-PARTY PLAINTIFF V. UNIVERSAL COMMUNICATION NETWORK &MDASH; PENNSYLVANIA L.L.C. THIRD-PARTY DEFENDANT.
The opinion of the court was delivered by: Anita B. Brody, United States District Judge.
EXPLANATION AND ORDER
Plaintiff EarthData International of North Carolina, Inc.
("EarthData"), the subcontractor, and defendant STV, Incorporated
("STV"), the contractor, entered into a subcontract agreement. The
parties filed cross motions for summary judgment that require me to
interpret the payment provision in their subcontract. Because I conclude
that both parties have proffered reasonable interpretations of the
disputed terms, I will deny both motions.
On April 23, 1999, STV entered into a contract with third-party
defendant Universal Communication Networks — Pennsylvania, L.L.C.
("Universal"). STV agreed to provide architectural and engineering
services for Universal's Fiber Optic Resource Sharing Project. On April
29, 1999, STV subcontracted with EarthData to provide the aerial mapping
services component of the project. Universal concurred in the choice of
EarthData to perform the subcontracted services.
STV admits that EarthData supplied the services requested and regularly
issued invoices reflecting the work performed. EarthData submitted
invoices totaling $215,749. To date STV has paid EarthData a total of
$35,000. The dispute concerns STV's obligation to pay the outstanding
balance of $180,749 that the parties agree is due EarthData.
Article IV of the subcontract sets forth the relevant terms of
A. The Consultant [STV] will compensate the
Subconsultant [EarthData] for the satisfactory
performance of the Scope of Services in Attachment A
in accordance with the Prime Agreement and this
Subcontract as may be modified in writing from time to
time. If the Client [Universal] sets a specific
retention rate in the Prime Agreement to be withheld
from the Consultant, then the Consultant may retain a
corresponding percentage from payments to the
Subconsultant, where appropriate. . . .
B. The Subconsultant invoices approved for payment
by the Client shall be paid to the Subconsultant when
such payment is received by the Consultant. Any item
in the Subconsultant's invoice disallowed by the
Client will not be paid by the Consultant. Payments
made to the Subcontractor on fee and/or costs that are
later disallowed by the Client shall either be
withheld by the Consultant from subsequent payments to
the Subconsultant or refunded promptly by the
Subconsultant to the Consultant where such subsequent
payments are insufficient to cover such
Plaintiff's Complaint, Exhibit A, "Subcontract," Article IV —
Compensation [emphasis added].
Universal has paid $25,000 of the $496,460 due STV under the Prime
Agreement. On January 16, 2001, STV filed a third-party complaint against
Universal, claiming that Universal is liable for all of EarthData's
claims against STV.
Both plaintiff EarthData and defendant STV have moved for summary
judgment,*fn1 each asking that the court interpret the payment provision
as a matter of law. When a party files a cross motion, it claims that it
alone is entitled to summary judgment and that, for the limited purpose
of the disposition of its own motion, there are no outstanding issues of
material fact. See Transportes Ferreos de Venezuela II CA v. NKK Corp.,
239 F.3d 555, 560 (3d Cir. 2001) (quoting Rains v. Cascade Indus., Inc.,
402 F.2d 241, 245 (3d Cir. 1968)). By making contradictory claims, the
parties neither agree that the rejection of one claim justifies the other
nor waive judicial determination of whether material fact issues exist.
Summary judgment is proper where 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). The court should determine whether
there are factual issues that merit a trial. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247-48 (1986). Summary judgment is appropriate
if no factual issues exist and the only issues before the court are
legal. See Sempier v. Johnson and Higgins, 45 F.3d 724, 727 (3d Cir.
To grant either party summary judgment on an issue of contract
interpretation, a court must conclude that the disputed payment provision
is subject to only one reasonable interpretation. See Emerson Radio
Corp. v. Orion Sales, Inc. et al., 253 F.3d 159, 163-64 (3d Cir. 2001)
(quoting Arnold M. Diamond, Inc. v. Gulf Coast Trailing Co., 180 F.3d 518,
521 (3d Cir. 1999)). Each party believes that the provision unambiguously
supports its position, and therefore suggests that disposition of this
matter at summary judgment is appropriate.
The question, therefore, is
whether EarthData has advanced a reasonable alternative reading of the
payment provision to that advanced by STV, and whether STV has advanced a
reasonable alternative reading of the payment provision to that advanced
by EarthData. See Sanford Inv. Co. v. Ahlstrom Mach. Holdings, Inc.,
198 F.3d 415, 421 (3d Cir. 1999).
A recent Third Circuit opinion sets forth a detailed analysis of
contract interpretation and ambiguity under Pennsylvania law.*fn2
Bohler-Uddeholm America, Inc. v. Ellwood Group, Inc. 247 F.3d 79 (3d
Cir. 2001).*fn3 In Bohler-Uddeholm, defendant-appellant Ellwood
challenged the lower court's ruling that the purchase agreement in
question was ambiguous as a matter of law. The parties disputed the
meaning of the term "Buyer's Purchases" in the purchase agreement in
question. Ellwood, the buyer, argued that the clause unambiguously
referred to all of its purchases. Uddeholm, in response, argued that the
clause was ambiguous, because it was not clear on its face if "Buyer's
Purchases" was limited to purchases for the buyer's own use only.
Uddeholm contended that evidence both contained within the agreement and
extrinsic to it showed that the disputed language was so limited. The
district court supported Uddeholm's position that the disputed clause was
ambiguous, and thus sent the issue of interpretation to the jury. See
id. at 91-92. In reviewing the district court's determination, the Third
Circuit took the opportunity to examine the Pennsylvania law on contract
interpretation which guided the district court's threshold legal
determination regarding ambiguity. Chief Judge Becker's analysis in
Bohler-Uddeholm will guide me through the process of analyzing the case
The provision at the heart of the dispute states that: "The [EarthData]
invoices approved by [Universal] shall be paid to [EarthData] when such
payment is received by [STV]." Subcontract, Article IV section B (emphasis
added). STV argues that the plain language of that clause unambiguously
conditions its payment to EarthData on 1) the approval of EarthData
invoices by Universal, and 2) its receipt of payment from Universal. This
straightforward reading of the clause is reasonable. However, EarthData
counters with what essentially is a contention that the disputed clause
is latently ambiguous.*fn4 EarthData suggests that the disputed terms of
the subcontract can be read as a "pay when paid" provision of the kind
routinely used in construction subcontracts. EarthData argues that the
disputed clause refers only to the timing of STV's payment, not its
obligation to pay. Under this "pay when paid" arrangement, EarthData
argues, the contractor makes an unconditional promise to pay the
subcontractor, but fixes the time of actual payment to the earlier of 1)
the time when payment is received by the owner, or 2) a reasonable period
The question before me is whether EarthData's claim that the disputed
clause is latently ambiguous meets the standard that Chief Judge Becker
explains in Bohler-Uddeholm.
It does meet that standard. EarthData
supports its claim with extrinsic evidence properly intended to show that
specific terms in the subcontract are ambiguous, and to bolster an
ambiguity argument based on the parties' linguistic references, not on
their expectations. See Bohler-Uddeholm, 247 F.3d at 93. That is,
EarthData properly hangs its proffered extrinsic evidence on a
"contractual hook." See id. at 96.
The contractual hook is there: the claim that the "when paid" language
in the disputed provision creates a timing mechanism. EarthData can point
to other language in the subcontract that supports its understanding of
the disputed clause. Section A of the compensation provision provides
that "[STV] will compensate [EarthData] for the satisfactory performance
of the Scope of Services . . . in accordance with the Prime Agreement and
this Subcontract as may be modified in writing from time to time."
Subcontract, Article IV, section A. That language reasonably can be read
to establish STV's obligation to compensate EarthData for satisfactory
work, suggesting that the disputed language from section B merely
establishes a time frame for those payments.
Also, if STV meant to condition its payment to EarthData on the
approval of EarthData invoices by Universal and STV's receipt of payment
from Universal, the payment clause would include words such as
"condition," "if and only if," or "unless and until" that would
unambiguously convey that intention. As written, the clause could
establish a timing mechanism for payment. The reasonableness of
EarthData's interpretation is strengthened by the fact that STV could
have easily used a different term to convey the contradictory meaning.
See Bohler-Uddeholm, 247 F.3d at 96.
To bolster its interpretation with other extrinsic evidence, EarthData
refers to two articles discussing subcontracting practices in the
construction industry, and in particular, to the common understanding of
provisions similar to the one presently disputed. EarthData's proffered
evidence distinguishes the type of language used here from a "pay if
paid" provision that expressly conditions payment to the subcontractor on
the receipt of funds from the owner.
What's more, EarthData's reading of the compensation clause produces a
reasonable and sound result. Under its understanding of the contractual
language, the subcontractor has a right to sue the contractor if the
owner does not meet its obligations to the contractor within a reasonable
time. Once the subcontractor sues the contractor for payment, the
pressure of the lawsuit should prompt the contractor to sue the owner for
payment, just as STV has done by filing a third-party complaint against
Earthdata has properly established a latent ambiguity in the
compensation terms of the contract. Because the disputed language is
subject to two reasonable and contradictory interpretations, the
subcontract is legally ambiguous, and its interpretation must be left to
the jury. Therefore I will also deny STV's motion for summary judgment.
AND NOW, this ___ day of August, 2001, it is ORDERED that:
1) Plaintiff EarthData International of North
Carolina's Motion for Summary Judgment (filed as
docket entry no. 4 in the District Court of Maryland
prior to the transfer of this case to the Eastern
District of Pennsylvania) is DENIED;
2) Cross Motion by Defendant STV, Inc. for Summary
Judgment (docket entry no. 3, filed 1/16/01) is
It is FURTHER ORDERED that the parties shall appear for a status
conference on September 12, 2001 at 4:30 p.m. in chambers, room 7613,
United States Courthouse, Philadelphia, Pennsylvania.