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Community Association Underwriters of America, Inc. A/S/O v. Rhodes Development Group

July 29, 2011


The opinion of the court was delivered by: Judge Sylvia H. Rambo


This case involves a subrogation claim filed by Community Association Underwriters of America, Inc., ("CAUA") seeking recovery of payments made to Park View at Waverly Condominiums ("Park View") as a result of a fire that occurred on March 4, 2008. Before the court are five motions for summary judgment filed by various Defendants. Defendants Pedro Quintero, Rhodes Development Group, and Adams Drywall filed three separate but generally identical motions seeking summary judgment on the grounds of spoliation of evidence resulting from alleged tampering with the fire scene during the demolition process. (Docs. 43, 49, & 50.) Defendants also filed a joint motion for summary judgment on the grounds that Plaintiff's expert's report is deficient because it fails to state the basis for the expert's opinion as required under Federal Rule of Civil Procedure 26 (a)(2)(B). (Doc. 45.) Lastly, Defendants filed a joint motion for summary judgment based upon Plaintiff's alleged waiver of subrogation. (Doc. 95.) The motions have been fully briefed and are ripe for disposition. Also presently pending and ripe is Plaintiff's motion in limine regarding the proper method for calculating damages in this case. (Doc. 99.) For the reasons set forth below, Defendants' joint motion for summary judgment based upon waiver of subrogation will be granted. Because the court will grant summary judgment in favor of Defendants based on waiver of subrogation, the court need not address Defendants' other motions for summary judgment or Plaintiff's motion in limine.

I. Background

A. Facts*fn1

The following are only those facts relevant to Defendants' waiver of subrogation argument, and are undisputed unless otherwise noted.*fn2

This case arises out of a fire that occurred on March 4, 2008 at Park View Condominiums, located in Swatara Township, Dauphin County, Pennsylvania.

Plaintiff, CAUA, insures the condominium association for Park View. Construction for Park View began when Waverly Woods Associates ("Waverly Woods"), the original owner of the subject real estate, entered into a standard American Institute of Architects contract ("AIA contract") on December 1, 2005, with R & L Construction Company ("R&L") whereby R&L was to be the general contractor for the construction of condominium units. The AIA contract incorporated a separate document, entitled "General Conditions of the Contract for Construction," ("General Conditions") which included a standard waiver of subrogation clause ("Waiver"). That clause states, in relevant part:

The Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents, employees, each of the other, . . . , for damages caused by fire or other perils to the extent covered by property insurance . . . applicable to the Work. (General Conditions, Doc. 98, Exh. B, Art. 11, § 11.3.7.)

R&L subsequently entered into a written subcontract with Adams Drywall, Inc. ("Adams") whereby Adams was to install drywall in the condominium units. Thereafter, Adams entered into oral subcontracts with Alan Barb ("Barb") and Pedro Quintero ("Quintero"). When installing drywall, typically a heat source is necessary to prevent the drywall from freezing and cracking during periods of cold weather. Here, R&L provided propane-fired portable heaters and tanks of propane gas to be used by the subcontractors for such purposes. Plaintiff's amended complaint alleges that Defendants R&L, Adams and Quintero negligently placed the propane heater, causing the fire and the resultant damage and destruction. (Doc. 90, ¶15.)

On May 24, 2007, almost a year prior to the fire, Waverly Woods signed and recorded a Declaration of Condominium ("Declaration"),whereby the subject real estate, "including all easements, rights and appurtenances thereto belonging to the Buildings and Improvements erected or to be erected thereon" became subject to the provisions of the Pennsylvania Uniform Condominium Act, 68 Pa.C.S. § 3101 et seq. ("the Act" or "PUCA"), thereby creating a flexible condominium known as "Park View at Waverly, a Condominium."*fn3 Following the March 4, 2008 fire, Plaintiff paid Park View for damages to certain condominium units and, as a result, Plaintiff contends that it became subrogated to the rights of Park View to seek recovery for such losses from third-parties, including Defendants.

B. Procedural History

On February 9, 2009, Plaintiff filed a complaint against Defendants R&L, Adams, Quintero, and Barb, alleging negligence and breach of contract. (Doc. 1.) Defendant Barb was later dismissed by stipulation. (Doc. 48.) Plaintiff failed to serve Defendant Quintero, however, and therefore a separate complaint was filed solely against Defendant Quintero on December 10, 2009, also alleging negligence and breach of contract. (Docket No. 1:09-CV-02431, Doc. 1.) This court granted consolidation on February 16, 2010. (Doc. 39.)

On February 14, 2011, Defendants filed a joint motion for summary judgment based on the waiver of subrogation clause incorporated into the AIA contract between the original owner, Waverly Woods, and the developer of the condominium complex, Defendant R&L.*fn4 (Doc. 67.) However, on April 13, 2011, this court granted Plaintiff's motion to amend its complaint. (Doc. 89.) In doing so, Plaintiff withdrew the breach of contract claim and also deleted any language from the original complaint claiming that Park View is a third-party beneficiary to any agreement between any other parties or non-parties to this action (e.g., the AIA contract). (Doc. 90.) The court also directed Defendants to either file amended motions for summary judgment or stand on the currently filed motions. (Doc. 89.) On April 27, 2011, Defendants filed a joint amended motion for summary judgment based upon waiver of subrogation and brief in support thereof. (Docs. 95 & 96.) Plaintiff submitted its brief in opposition on May 9, 2011, (Doc. 98) and Defendants filed a reply brief on May 23, 2011 (Doc. 103). Accordingly, the motion is ripe for disposition.

II. Standard

Summary judgment is proper when "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 a judgment as a matter of law." FED. R. CIV. P. 56(c); accord Saldana v.

Kmart Corp., 260 F.3d 228, 231-32 (3d Cir. 2001). A factual dispute is "material" if it might affect the outcome of the suit under the applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is "genuine" only if there is a sufficient evidentiary basis that would allow a reasonable fact-finder to return a verdict for the nonmoving party. Id. at 248. The court must resolve all doubts as to the existence of a genuine issue of material fact in favor of the non-moving party. Saldana, 260 F.3d at 232; see also Reeder v. Sybron Transition Corp., 142 F.R.D. 607, 609 (M.D. Pa. 1992).

The moving party bears the initial burden of demonstrating the absence of a disputed issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). Upon such a showing, the burden then shifts to the non-moving party to present "specific facts showing the existence of a genuine issue for trial." FED. R.

CIV. P. 56(e). The nonmoving party may not simply sit back and rest on the allegations in its complaint; instead, it must "go beyond the pleadings and by [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex Corp., 477 U.S. at 324 (internal quotations omitted); see also Saldana, 260 F.3d at 232 (citations omitted). Summary judgment should be granted where a party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden at trial." Celotex Corp., 477 U.S. at 322-23. "'Such affirmative evidence -- regardless of whether it is direct or circumstantial -- must amount to more than a scintilla, but may amount to less (in the evaluation of the court) than a preponderance.'" Saldana, 260 F.3d at 232 (quoting Williams v. Borough of West Chester, 891 F.2d 458, 460-61 (3d Cir. 1989)).

Because subject matter jurisdiction in this case is based on diversity of citizenship, the court looks to the substantive law of Pennsylvania to determine the rights and obligations of the parties. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 77 (1938). The law of the Commonwealth is declared by "its Legislature in a statute or by its highest court." Id. The Pennsylvania Supreme Court is the best authority on Pennsylvania law, but when the Supreme Court has not issued a clear pronouncement in a particular area, the court "must consider relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data" to determine what the law is. McKenna v. Ortho Pharm. Corp., 622 F.2d 657, 661, 663 (3d Cir. 1980); see also Comm'r v. Estate of Bosch, 387 U.S. 456, 465 (1967). Opinions from lower Pennsylvania courts are not controlling, but they are entitled to significant weight when there is no indication that the Pennsylvania Supreme Court would rule otherwise.

III. Discussion

Although the facts as they pertain to Defendants' waiver argument are largely undisputed, the parties' interpretation of the scope of the AIA contract differs significantly. Defendants argue that the AIA contract, and the incorporated waiver of subrogation clause, applies to Park View because Park View is an intended third-party beneficiary of the contract. (Doc. 96 at 7-13.) Plaintiff responds that Park View is not a signatory party to the AIA contract and, moreover, the contract contains no express intent to benefit Park View. Plaintiff argues that Park View is, at best, merely an incidental third-party beneficiary and thus not bound to the contract. (Doc. 98 at 5-12.) Therefore, the central issue this court must resolve is whether the waiver of subrogation clause incorporated into the AIA contract is applicable to Park View.

A. Park View is an Intended Third-Party Beneficiary to the AIA Contract Under the Restatement of Contracts § 302

Because it is well-recognized in Pennsylvania that subrogation is an equitable doctrine that "places the subrogee [CAUA] in the position of the subrogor [Park View]," any defenses that may be raised against Park View may also be raised against CAUA. Reyna v. The Phoenix Ins. Co., 2011 U.S. Dist. LEXIS 26524, at *4 (M.D. Pa. March 15, 2011) (citing Pub. Serv. Mut. Ins. Co. v. Kidder-Friedman, 743 A.2d 485, 488 (Pa. Super. 1999)); see also Church Mut. Ins. Co. v. Palmer Constr. Co., Inc., 153 F. App'x 805, 808 (3d Cir. 2005) (applying Pennsylvania law). Waivers of subrogation have been upheld by the courts. See Commercial Union Ins. v. Bituminous Cas. Corp., 851 F.2d 98 (3d Cir. 1988); Penn Ave. Place Assocs. v. Century Steel Erectors, 798 A.2d 256 (Pa. Super. 2002). Courts considering AIA contracts similar to this one have concluded that "the contract operates to shift to the owner the ultimate risk of loss, which is then transferred to the insurer for consideration, leaving the insurer no right to proceed by subrogation against a subcontractor with respect to property loss." Commercial Union Ins. Co., 851 F.2d at 101. The issue to be resolved here is whether the waiver is also ...

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