United States District Court, M.D. Pennsylvania
June 15, 2005.
UNITED STATES OF AMERICA, ex rel. RJE TELECOM, Plaintiff,
PINNACLE ELECTRONICS; UNITED STATES FIDELITY & GUARANTY; ST. PAUL FIRE & MARINE INSURANCE CO.; TRAVELERS PROPERTY CASUALTY; and XL SURETY, Defendants. PINNACLE ELECTRONIC SYSTEMS, Third Party Plaintiff, v. BELL JUSTICE FACILITIES; HOWARD ORGANIZATION INC.; UNITED STATES FIDELITY & GUARANTY; ST. PAUL FIRE & MARINE INSURANCE CO.; TRAVELERS PROPERTY CASUALTY; and XL SURETY, Third Party Defendants.
The opinion of the court was delivered by: JAMES MUNLEY, District Judge
Presently before the Court for disposition are three motions to
dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6): (1)
Defendant XL Surety's ("XL") motion to dismiss Count II of
Plaintiff RJE Telecom's ("RJE") amended complaint; (2) United
States Fidelity and Guaranty ("USF&G") and St. Paul Fire & Marine
Insurance Co.'s ("St. Paul") joint motion to dismiss Counts II
and IV of Pinnacle Electronic System's ("Pinnacle") Third Party Complaint; and (3) Bell Justice Facility's ("Bell") motion to
dismiss Counts II and III of Pinnacle's Third Party Complaint.
These matters have been fully briefed and are ripe for
disposition. For the following reasons, we will: (1) grant XL's
motion in part; 2) grant USF&G and St. Paul's motion to dismiss
as to Count II but deny it as to Count IV; and 3) deny Bell's
motion in its entirety.
The instant suit arises from wire installation work in the
construction of a federal penitentiary in Canaan, Pennsylvania.
Bell was the prime contractor for the construction of the
penitentiary ("the project"). Bell subcontracted security
installations work to Howard Organization, Inc. ("Howard"). Bell
subcontracted fiber optic installations to Pinnacle. Howard
subcontracted copper wire installation work to Pinnacle.
On March 7, 2002, Pinnacle subcontracted the communications
installations work to RJE, pursuant to its subcontract with Bell.
A significant portion of RJE's duties pursuant to this
subcontract was to install fiber-optic cable in an underground
duct system constructed by others. On June 19, 2002, RJE and
Pinnacle amended the March 7 subcontract by means of Change Order
# RJE-001, which expanded RJE's duties to include the
installation of copper cable in the duct system. Pinnacle
subcontracted the installation of the copper cable pursuant to
its subcontract with Howard, who subcontracted to Pinnacle
pursuant to its subcontract with Bell. Thus, regarding the fiber-optic cable installation, RJE was
a subcontractor to Pinnacle and a second-tier subcontractor to
Bell. Regarding the copper cable installation, RJE was a
subcontractor to Pinnacle, a second-tier subcontractor to Howard,
and third-tier subcontractor to Bell.
As surety on the project, Bell obtained payment bonds from
Defendants USF&G and St. Paul. Howard purchased a $9.35 million
performance bond from CGU Insurance, whose bond business was
thereafter purchased by Defendant XL Surety. Pinnacle procured a
labor and materials bond from Reliance Insurance, whose bond
business was subsequently purchased by Defendant Travelers
Property Casualty ("Travelers").
When RJE began to perform the cable installations in the duct
system, it found that the system deviated from Pinnacle's
specifications and contractual representations. The deviations
caused RJE to incur unanticipated costs in performing its
obligations. RJE informed Pinnacle of the difficulties it
encountered and the potential damages these difficulties may
cause the prison's security system. Additionally, RJE warned
Pinnacle that it would not provide any guaranty or warranty for
its work and that it would seek an equitable adjustment to the
contract. In response, Pinnacle terminated RJE and hired a
On September 14, 2004, RJE filed an amended complaint*fn2
advancing the following six counts: 1) breach of contract against Pinnacle; 2) violation of
the Miller Act, 40 U.S.C. § 3131 et seq., and payment bond
claims against USF&G, St. Paul, Travelers, and XL; 3) unjust
enrichment/quantum meruit against Pinnacle; 4) breach of good
faith and fair dealing against Pinnacle; 5) violation of the
Pennsylvania Contractor and Subcontractor Payment Act, 73 PA.
CONS. STAT. ANN. §§ 501 et seq. and/or the Federal Prompt Pay
Act, 31 U.S.C.A. § 3902 et. seq. against Pinnacle; and 6)
negligent misrepresentation against Pinnacle.
On November 19, 2004, Pinnacle filed an amended third party
complaint*fn3 asserting the following four claims: 1) breach
of contract against Bell and Howard; 2) common law indemnity
against Bell, Howard, USF&G, St. Paul, and XL; 3) negligent
misrepresentation against Bell and Howard; and 4) Miller Act
claims against USF&G, St. Paul, Travelers, and XL.
Presently, XL seeks to dismiss Count II of RJE's complaint,
USF&G and St. Paul seek to dismiss Counts II and IV of Pinnacle's
third party complaint, and Bell seeks to dismiss counts II and
III of Pinnacle's third party complaint.
Since a federal question is before the court under
40 U.S.C. §§ 3131 et seq. and 31 U.S.C. §§ 3902 et seq., this court has
jurisdiction over this dispute pursuant to
28 U.S.C. § 1331.*fn4 This court also has supplemental jurisdiction over
the plaintiff's claims that arise under state law, pursuant to 28 U.S.C. § 1367(a), as these claims are
"part of the same case or controversy" as the plaintiff's federal
When a 12(b)(6) motion is filed, the sufficiency of a
complaint's allegations are tested. The issue is whether the
facts alleged in the complaint, if true, support a claim upon
which relief can be granted. In deciding a 12(b)(6) motion, the
court must accept as true all factual allegations in the
complaint and give the pleader the benefit of all reasonable
inferences that can fairly be drawn therefrom, and view them in
the light most favorable to the plaintiff. Morse v. Lower Merion
Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997).
Presently before the court are one motion to dismiss a portion
of RJE's complaint, and two motions to dismiss portions of
Pinnacle's third party complaint. In the interests of clarity, we
will address the two pleadings separately.
RJE's Amended Complaint
In Count II of its amended complaint, RJE seeks to recover
under a payment bond that XL issued to Howard. RJE alleges that
it provided labor and material pursuant to a subcontract with
Pinnacle, which were used and required for Pinnacle's performance
of its subcontract with Howard. Thus, RJE seeks to recover under
the labor and materials bond issued by XL to Howard.
XL argues that RJE cannot recover under the bond as a matter of
law because the bond expressly limits the claimants to those with a direct contract
with Howard. "A claimant is defined as one having a direct
contract with the Principal for Labor, material, or both, used or
reasonably required for use in the purchase of the contract."
(Doc. 67, RJE Amend. Compl. Ex. C). RJE does not allege that it
had a direct contract with Howard, and therefore it has no claim
under the payment bond.
RJE does not contest that it is a proper claimant under the
bond, but rather argues that it may assert a "pass-through"
claim, and thus recover through Howard, who is a proper claimant
under the bond. A pass-through claim, according to RJE, is a
claim brought "(1) by a party who has suffered damages; (2)
against a responsible party with whom it has no contract; and (3)
presented through an intervening party who has a contractual
relationship with both." 3 BRUNER & O'CONNOR ON CONSTRUCTION LAW
§ 8:51 (2003). Thus, RJE argues, that because Pinnacle has a
direct contract with Howard, and Howard can recover under the
bond, RJE's contract with Pinnacle allows it to "pass-through"
Pinnacle and recover under the bond.
RJE has failed to cite to a single case recognizing a
pass-through claim in this context and allowing a non-party,
non-third party beneficiary to recover under a contract. Our
research uncovers no such case, and we find that a "pass-through"
claim as asserted in this context by RJE does not exist as a
matter of law.
"[A] surety is obligated only to the extent provided in the
agreement of suretyship." Lezzer Cash & Carry, Inc. v. Aetna
Ins. Co., 537 A.2d 857, 861 (1988). Thus, where the surety bond
guarantees performance by the principal solely, a party may not
recover against the surety unless it may recover from the principle. Knecht, Inc. v. United
Pacific Ins. Co., 860 F.2d 74, 79 (3d Cir. 1988). As RJE has no
contract with Howard, nor is a third party beneficiary of a
Howard contract, it has no contract claim against Howard. Without
a contract claim against Howard, RJE cannot recover upon the
surety's guarantee of Howard's contractual performance. Id. The
surety agreement promises solely to guarantee Howard's
performance to those with a direct contract with Howard. As RJE
has no such direct contract, it cannot recover under the surety
The construction treatise cited by RJE in support of its
pass-through theory, indeed the only authority cited in support
of this theory, supports our holding. The treatise notes that
pass-through claims require an agreement between the
subcontractor asserting the claim and the conduit party that the
latter will act as a conduit for the claims of the subcontractor.
3 BRUNER & O'CONNOR ON CONSTRUCTION LAW § 8:51 (2004). RJE does
not allege that it entered into such an agreement with Pinnacle.
Therefore, we find that the "pass-through" theory as articulated
by RJE does not present a cognizable claim as a matter of law.
Accordingly, we will dismiss the payment bond claim portion of
Count II against XL.*fn5
Pinnacle's Third Party Complaint USF&G, St. Paul, and Bell have all moved to dismiss Pinnacle's
common law indemnity claim in Count II. Bell has moved to dismiss
Count III, negligent misrepresentation; and USF&G and St. Paul
have moved to dismiss the Count IV Miller Act claims. We will
discuss each count separately.
Count II/Common Law Indemnity
Pinnacle alleges that to the extent that it is liable to RJE
for defects in the duct bank system, then Bell and its sureties,
USF&G and St. Paul, are required to indemnify Pinnacle for such
liability. (Pinnacle Third Party Complaint ¶ 24). Pinnacle
alleges that Bell and/or Howard were responsible for the
installation of the ducts. (Id. at ¶ 16). USF&G, St. Paul, and
Bell all argue that RJE's common law indemnity claim fails to
state a cause of action. For the following reasons, we agree with
USF&G and St. Paul, but find that RJE states a cause of action
"[U]nder Pennsylvania law, indemnity is available only (1)
`where there is an express contract to indemnify,' or (2) where
the party seeking indemnity is vicariously liable or secondarily
liable for the indemnitor's acts." Allegheny General Hospital v.
Phillip Morris, Inc., 228 F.3d 429, 448 (3d Cir. 2000)
(citations omitted). Pinnacle does not argue that USF&G, St.
Paul, or Bell entered into an express contract to indemnify it.
Instead, it argues that it was secondarily liable for Bell's
acts, and thus is entitled to indemnity.
Secondary liability exists, for example, where there
is a relation of employer and employee, or principal
and agent; if a tort is committed by the employee or
the agent recovery may be had against the principal
on the theory of respondeat superior, but the person
primarily liable is the employee or agent who committed the tort, and the employer or principle
may recover indemnity from him for the damages which
he has been obliged to pay.
Builders Supply Co. v. McCabe, 77 A.2d 368, 370 (Pa. 1951).
Taking the factual allegations in Pinnacle's Third Party
Complaint as true, as well as resolving all reasonable inferences
in its favor, we find that Pinnacle has stated a claim for common
law indemnity against Bell. Pinnacle alleges that it may be held
liable to RJE based on the condition of the ducts, and Bell was
responsible for the condition. It further alleges that it made no
representations, contractual or otherwise, to RJE regarding the
ducts. Thus, RJE contends that it has secondary liability because
it can be held liable solely based on the conduct of Bell. "[T]he
important point to be noted in all the [common law liability]
cases is that secondary as distinguished from primary liability
rests upon a fault that is imputed or constructive only, being
based on some legal relation between the parties, or . . .
because of a failure to discover or correct a defect . . . caused
by the act of the one primarily responsible." Id. at 371.
Pinnacle alleges that it may be held liable solely for its
failure to correct a defect caused by Bell, who was primarily
liable. Thus, we find that dismissal of Pinnacle's common law
indemnity claim against Bell is premature at this stage of
litigation, and we will deny Bell's motion to dismiss Count II.
Pinnacle, however, has failed to state a common law indemnity
claim against USF&G or St. Paul because it does not argue that
USF&G or St. Paul is primarily liable for any recovery RJE may
have. Pinnacle does not allege that USF&G or St. Paul was
responsible for the condition of the ducts. Indeed, they
participated in the project solely as surety companies. Nor does Pinnacle contend that USF&G or St. Paul entered into a
contractual agreement to indemnify. A court cannot impose
obligations under a surety bond that are not contained in the
terms of the bond. Wise Investments, Inc. v. Bracy Contracting,
Inc., 232 F. Supp. 2d 390, 399 (E.D. Pa 2002). "[A] surety is
obligated only to the extent provided in the agreement of
suretyship." Lezzer Cash & Carry, Inc. v. Aetna Ins. Co.,
537 A.2d 857, 861 (1988). Thus, Pinnacle fails to allege any
connection or relationship with USF&G or St. Paul that would give
rise to a duty to indemnify, and we will dismiss Count II against
USF&G and St. Paul.
Count III/Negligent Misrepresentation
Bell seeks to dismiss Pinnacle's negligent misrepresentation
claim, arguing that Pinnacle failed to allege that Bell made any
specific misrepresentations. A third party complaint must set
forth "a short and plain statement of the claim showing that the
pleader is entitled to relief." FED. R. CIV. P. 8(a). The purpose
of this requirement is "to give the defendant fair notice of what
the plaintiff's claim is and the grounds upon which it rests."
Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Claims of fraud
are subject to heightened pleading requirements under Federal
Rule of Civil Procedure 9, but negligent misrepresentation claims
are not subject to the heightened pleading requirements of Rule
9. Floyd v. Brown & Williamson Tobacco Corp.,
159 F. Supp. 2d 823, 835 (E.D. Pa. 2001).
Pinnacle alleges that Bell made misrepresentations regarding
the conditions of the ducts on a specific construction project.
Thus, we find that Pinnacle's negligent misrepresentation
allegations are sufficient to place Bell on notice of the conduct
for which Pinnacle seeks recovery. Accordingly, we will deny Bell's motion
to dismiss Pinnacle's negligent misrepresentation claim.
Count IV/Miller Act
USF&G and St. Paul move to dismiss Pinnacle's Miller Act claim
for failure to comply with the statute of limitations. The Miller
Act provides that claims must be brought within "one year after
the day on which the last of the labor was performed or material
was supplied by him." 40 U.S.C. § 3133(b)(4). In analyzing the
complaint, we must make all reasonable inferences in favor of the
plaintiff. Jordan v. Fox, Rothschild, O'Brien & Frankel,
20 F.3d 1250, 1261 (3d Cir. 1994). A district court should grant a
motion to dismiss for failure to satisfy the statute of
limitation solely if the "complaint facially shows non-compliance
with the limitations period and the affirmative defense clearly
appears on the face of the pleading." Oshiver v. Levin,
Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n. 1 (3d Cir.
1994). Nothing in the pleading suggests that the last day that
Pinnacle supplied materials or performed labor was more than a
year before the pleading. Therefore, we cannot dismiss the
pleading based on the statute of limitations.
Thus, we will dismiss the portion of Count II of RJE's
complaint that asserts a payment bond claim against XL, and we
will dismiss the portion of Count II of Pinnacle's third party
complaint against USF&G and St. Paul. ORDER
AND NOW, to wit, this 15th day of June 2005, it is hereby
1) Defendant XL Surety Co.'s motion to dismiss Count
II of Plaintiff RJE Telecom's complaint (Doc. 54) is
GRANTED in part. To the extent that the motion
seeks to dismiss RJE's payment bond claim, the motion
is GRANTED. To the extent that the motion seeks to
dismiss RJE's Miller Act claim, the motion is
DENIED. 2) Third Party Defendants United States Fidelity &
Guaranty and St. Paul Fire & Marine Insurance
Company's joint motion to dismiss Counts II and IV of
Third Party Plaintiff Pinnacle's Third Party
Complaint (Doc. 77) is hereby GRANTED as to Count
II, but DENIED as to Count IV.
3) Third Party Defendant Bell Justice Facility's
motion to dismiss (Doc. 75) is DENIED.