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Hatfield Township, Montgomery v. Lexon Insurance Company

February 23, 2011

HATFIELD TOWNSHIP, MONTGOMERY COUNTY, PENNSYLVANIA
v.
LEXON INSURANCE COMPANY, : APPELLANT :



The opinion of the court was delivered by: Opinion BY Judge Brobson

Argued: October 14, 2010

BEFORE: HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE JOHNNY J. BUTLER, Judge

Appellant Lexon Insurance Company (Lexon) appeals from an order of the Court of Common Pleas of Montgomery County (trial court). The trial court granted, in part, Hatfield Township's (Township) petition for a preliminary injunction, directing Lexon to pay the Township monetary proceeds from a surety bond. The surety bond was posted by T.H. Properties, L.P. (Developer) and issued by Lexon in accordance with a land development agreement between the Township and Developer.

The Township initiated this action by filing a complaint against Lexon on June 9, 2010. The Township averred that it entered into a land development and construction escrow agreement with Developer in December 2006, relating to Developer's plan to develop a residential subdivision called Westport Farms. The agreement required Developer to provide the Township with financial security in the form of a surety bond to secure completion of the public improvements in the development. Developer provided the Township with Surety Bond No. 1018386 (the Bond), issued by Lexon on September 14, 2006, identifying Developer as principal, Lexon as surety, and the Township as Obligee. (Reproduced Record (R.R.) at 63a-67a.)

Developer filed for bankruptcy under Chapter 11 in April 2009. (R.R. at 77a.) On May 18, 2009, the Township, in compliance with the terms of the Bond, sent a letter (Default Notice) to Developer (with a copy to Lexon), informing Developer that Developer was in default of the land development agreement and that Developer had twenty days to respond with some indication that it would move forward with completion of certain public improvements. (R.R. at 82a.) On June 2, 2009, the bankruptcy court issued an order directing, in part, that any claim by the Township against the Bond be stayed for sixty (60) days. (R.R. at 86a.)

The Township received a June 3, 2009 letter from Lexon, requesting information regarding the Township's claim (R.R. at 92a). The Township responded to Lexon's letter on June 22, 2009, providing the information Lexon requested. (R.R. 95a.) On July 30, 2009, the bankruptcy court extended the stay for an additional forty-five (45) days. (R.R. at 100a.) A letter dated August 11, 2009, from Lexon's counsel to the Township, indicated that Developer might be able to complete the public improvements before the expiration of the stay. (R.R. at 107a.) The Township submitted a punch list of outstanding public improvement work to Lexon's counsel on August 18, 2009. (R.R. at 110a.) The Township also advised Lexon it intended to pursue its claim under the Bond when the bankruptcy court lifted the stay.

The Township sent a letter to Developer (with copies to Lexon and its counsel) on September 19, 2009, advising that the federal bankruptcy court had lifted the stay, and that the twenty-day period identified in the Township's May default letter expired on September 19, 2009. (R.R. at 125a.) The Township sent a letter to Lexon on September 21, 2009, which the Township describes as a demand of payment, indicating that the Township intended to "open a claim on the Bond." (R.R. at 132a; Complaint ¶ 20.) Lexon's counsel informed the Township, by letter dated September 23, 2009, that Developer was still reviewing the matter. (R.R. at 11a, 146a; Complaint ¶ 21.)

Lexon responded to the payment demand by letter dated November 12, 2009, informing the Township that Lexon and a contractor would investigate and inspect the site with Developer. (R.R. at 139a.) The contractor inspected the site on December 1, 2009. (R.R. at 11a; Complaint ¶ 23.) Later, counsel for Lexon advised the Township that Lexon would approve for payment most of the items on the punch list; however, the only item Lexon has paid for is road winterization, which totaled $9,925. (R.R. at 11a; Complaint ¶ 24.) On April 28, 2010, Lexon denied payment for 16 of 18 items listed on the punch list, and refused to discuss payment for the other two items until Lexon received estimates for the cost of work on those two items. (R.R. at 142a.) The Township sent a second demand letter to Lexon on April 30, 2010 (R.R. at 149a), but Lexon and its counsel refused or failed to pay the remaining amount of the Bond to the Township. (R.R. at 12a; Complaint ¶ 28.)

The Township's Complaint against Lexon sought (1) a declaratory judgment that Lexon is obligated by the Bond to pay the Township the remaining principal amount of $1,269,772, plus interest from September 19, 2009, costs, attorneys' fees, and punitive damages; and (2) a permanent injunction seeking payment of the Bond principal.

In its Complaint, the Township averred that the Township Engineer had inspected and observed 140 linear feet of trench settlement above the sanitary sewer along Grayson Drive in the development and additional trench settlement at numerous locations throughout the development. (R.R. at 13a; Complaint ¶ 35.)

The Township Engineer recommended taking immediate action to determine the cause of the trenches and to make repairs in order to restore the streets to a safe condition. (Id.) Further, the Township Engineer believed that the condition would become more "critical" with the passing of time. (Id.)

The Township also averred that the Township Engineer issued a revised punch list on June 2, 2010, describing outstanding work that needed to be completed in conjunction with the dedication of the Development. (R.R. at 14a;

Complaint ¶ 36.) The June 2010 punch list reflected improvements described as curb replacements, curb driveway depressions, sidewalk replacements, driveway apron replacements, handicap ramp replacements, bituminous trail, grading/stabilization, removal of erosion controls/staging area, cleaning of storm structures, storm sewer repairs, roadway repairs, leveling/scratch course, dewinterization, clean and tack coat, final paving, concrete replacements, public street signs, plumb/secure signs, placement of street lights, repair of drainage structures, concrete channels, placement of steps, replacement of C-tops, replacement of inlet grates, rest MH Top, Reset Inlet Top, flush storm system, Basin No. 1 conversion, Basin No. 2 conversion, Basin No. 3 completion,

bioretention swales 1-3, grade at endwall 13, repair easement settlement, repair inlet settlement, removal/grade/stabilize Open Space E, and mow/restore Open Space. (R.R. at 170a-72a; Complaint, Exhibit V (Estimated Cost Schedule for Completion of Punch List Items Revised June 2, 2010).)

The Township filed a petition for preliminary injunction the same day it filed its Complaint. The petition avers essentially the same facts as those in its Complaint, citing the same problems with roadway trenches and items Developer either had not begun to perform, had not completed, or had constructed improperly as identified in the June 2010 punch list. (R.R. at 183a-84a; Petition ¶¶ 28-9;

Exhibit V.)

On June 17, 2010, the trial court held a hearing on the preliminary injunction petition. The trial court issued an order on June 25, 2010, granting the Township's petition, in part, and directing Lexon to pay the Township $521,538 immediately for construction work that the trial court determined to be necessary to address health and safety issues in the development. The trial court approved payment for a variety of items identified on the punch list, including curb replacements, curb driveway depression, driveway apron replacements, handicap ramp replacements, removal of erosion controls/staging area, roadway repairs, leveling/scratch course, dewinterization, clean and tack coat, final paving, placement of street signs, placement of street lights, repair of drainage structures, placement of steps, replacement of C-Tops, replacement of inlet grates, reset of MH Top, reset of inlet top, basins Nos. 1-3 conversion, bioretention swales 1-3, repair easement settlement, repair inlet settlement, Open Space B (remove, fill, and stabilize), and mow and restore Open Space.

In its 1925(a)*fn1 Opinion, following Lexon's appeal to this Court, the trial court concluded that the Township had demonstrated an immediate threat to the health and safety of persons residing in and/or travelling through the development, and that the preliminary injunction was necessary to restore the status quo.

On appeal, Lexon identifies nine issues in its brief, which we summarize as follows:

1. Whether the Township satisfied its burden to establish the necessary criteria for the grant of a preliminary injunction, including: (a) irreparable harm; (b) no adequate remedy at law;

(c) a clear right to relief; and (d) maintenance of the status quo?

2. Whether the Township satisfied the heavy burden to demonstrate its entitlement to mandatory preliminary injunctive relief?

3. Whether the trial court erred in concluding that the statute of limitations for bond claims found at 42 Pa. C.S. § 5523 does not apply?

Standard of Review

In analyzing appeals from a trial court's granting of mandatory preliminary injunctive relief, the role of an appellate court does not permit an inquiry into the merits of the controversy. Rather, the courts should "examine the record to determine if there were any apparently reasonable grounds for the action of the court." Big Bass Lake Cmty. Ass'n v. Warren, 950 A.2d 1137, 1144 (Pa. Cmwlth. 2008) (quoting Roberts v. Bd. of Dir. of the Sch. Dist. of the City of Scranton, 462 Pa. 464, 469, 341 A.2d 475, 478 (1975)). The only circumstances warranting a reversal of a trial court's decision granting or denying a preliminary injunction are when it is clear "that no grounds exist to support the decree or that the rule of law relied upon was palpably erroneous or misapplied." Mazzie v. Com., 495 Pa. 128, 133, 432 A.2d 985, 988 (1981).

Standard for Granting Injunctive Relief

An applicant seeking mandatory injunctive relief must establish the following: (1) irreparable harm will occur that is not compensable by money damages; (2) greater injury will result from the denial of the injunction than by granting the injunction; (3) the injunction will restore the status quo between the parties; and (4) the party seeking relief has a clear right to relief in an actionable claim.*fn2

Further, in considering a request for mandatory injunctive relief as in this case, this Court in Big Bass Lake Community observed that "[a]lthough every injunction is extraordinary, the injunction that commands the performance of an affirmative act, a mandatory injunction, is the rarest, described as an 'extreme' remedy. . . . The case for a mandatory injunction must be made by a very strong showing, one stronger than that required for a restraining-type injunction." Id., 950 A.2d at 1145 (citations omitted).

a. Irreparable Harm

Lexon first argues that the Township has not established that it will be irreparably harmed because any injury the Township sustains can be remedied through the payment of money damages. Lexon also argues that the harm the Township has alleged is speculative.

Injunctive relief will lie where there is no adequate remedy at law. Maritrans GP Inc. v. Pepper, Hamilton & Scheetz, 529 Pa. 241, 259, 602 A.2d 1277, 1286 (1992). In essence, Lexon contends that the Township must complete the improvements and then seek reimbursement for the costs of the improvements through a breach of contract action. Lexon argues that because the Township has available to it a breach of contract action with the prospect of a judgment for monetary damages, the trial court was barred from exercising equity jurisdiction.

We do not believe that Lexon's proposed, alternative legal remedy is adequate or complete, and, thus, we reject Lexon's claim that the Township has not established irreparable harm. Our conclusion is premised on the provision of the Pennsylvania Municipalities Planning Code (MPC)*fn3 that applies in cases, like this one, where a municipality has required a developer to post a bond or other security to ensure the completion of necessary public improvements. Section 511 of the MPC*fn4 provides, in pertinent part:

In the event that any improvements which may be required have not been installed as provided in the subdivision and land development ordinance or in accord with the approved final plat the governing body of the municipality is hereby granted the power to enforce any corporate bond, or other security by appropriate legal and equitable remedies.

(Emphasis added.) Lexon fails to address Section 511 in its arguments to the Court.

The statutory language, nonetheless, is clear and unambiguous. Adhering to this provision of the MPC, we do not accept Lexon's premise that a municipality in the Township's situation must choose to damage itself--i.e., pay for the completion of public improvements--before it may sue to recover bond proceeds securing a developer's obligation to complete the public improvements. Instead, the General Assembly has expressly authorized municipalities to recover monetary proceeds from a bond by pursuit of legal and equitable remedies. In so doing, the General Assembly has made a policy decision that taxpayers should not be forced to front the cost of the improvements before the municipality can seek access to the bond proceeds. Forcing the Township to pay for the improvements before seeking relief from the courts, as Lexon suggests, would be contrary to the legislative intent behind Section 511 and deprive the Township of its statutory remedy. We thus conclude that the trial court did not err in exercising its equitable jurisdiction in this case.

We also reject Lexon's assertion that the Township has not averred irreparable harm, but merely speculative harm. Lexon characterizes the alleged harms as speculative because (1) the conditions the Township seeks to complete or correct ...


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