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Borough v. Peter v. Pirozzi General Contracting LLC

United States District Court, E.D. Pennsylvania

April 7, 2015

EDDYSTONE BOROUGH Plaintiff,
v.
PETER V. PIROZZI GENERAL CONTRACTING, LLC, and UNITED STATES SURETY COMPANY INC., and HCC SURETY GROUP, INC. Defendants. PETER V. PIROZZI GENERAL CONTRACTING, LLC Third Party Plaintiff,
v.
CATANIA ENGINEERING ASSOCIATES, INC., Third Party Defendant.

MEMORANDUM OPINION

PETRESE B. TUCKER, District Judge.

Presently before the Court is Defendants United States Surety Company ("USSC") and HCC Surety Group, Inc.'s (collectively "the Sureties") Motion for Summary Judgment (Doc. 44), Defendants USSC and HCC Surety Group's Informative Motion Regarding Docket No. 44 (Doc. 45), Plaintiff Eddystone Borough's ("the Borough") Brief in Opposition to Defendants USSC and HCC Surety Group's Motion for Summary Judgment (Doc. 48), Defendants USSC and HCC Surety Group's Brief in Support of their Motion for Summary Judgment (Doc. 53), Defendant/Counter-Plaintiff Peter V. Pirozzi General Contracting LLC's ("PVPGC") Motion for Partial Summary Judgment (Doc. 46), Plaintiff/Counter Defendant Borough's Brief in Opposition to PVPGC's Motion for Partial Summary Judgment (Doc. 51), and Defendant/Counter-Plaintiff PVPGC's Reply Brief in Support of Its Motion For Partial Summary Judgment (Doc. 54).[1]

The Borough filed its Complaint against PVPGC, USSC, and HCC Surety Group bringing a breach of contract action against PVPGC and an action on bond against USSC and HCC Surety Group after PVPGC allegedly breached its construction contract with the Borough. Defendant USSC had issued a performance bond as the Surety and named the Borough as the Owner and PVPGC as the Contractor. PVPGC counterclaimed against the Borough claiming 1) violations of the Pennsylvania Prompt Payment Act, 62 PA. CONS. STAT. ANN. § 3901, et seq. and 2) breach of contract. PVPGC now moves for partial summary judgment on its breach of contract counterclaim against the Borough.[2] (See PVPGC's Mot. for Partial Summ. J. at 3) Defendants USSC and HCC Surety Group move for summary judgment in their favor claiming that they are not liable under the performance bond because the Borough failed to satisfy the express conditions precedent set forth in the performance bond and the Borough committed an Owner Default. The Court will address PVPGC's Motion for Partial Summary Judgment as it relates to PVPGC's breach of contract counterclaim and the Sureties' Summary Judgment Motion.

For the following reasons, the Court will grant Counter Plaintiff PVPGC's Motion for Partial Summary Judgment and grant Defendants USSC and HCC Surety Group's Motion for Summary Judgment.

FACTUAL BACKGROUND[3]

Plaintiff Borough is a political subdivision of the Commonwealth of Pennsylvania located in Delaware County. (Compl. ¶ 1) The Borough authorized the construction of a new Eddystone Firehouse and Evacuation Center (the "Project") in 2011. (Borough's Br. in Opp'n 2, Doc. 48) The Project was financed through a low-interest loan from the Delaware Valley Regional Finance Authority ("DVRFA"). The Borough's engineer, Catania Engineering Associates ("CEA"), drafted the architectural plans, solicited public bids, and served as construction manager for the Project. (Id.) The Project had four prime construction contractors for general construction, plumbing, electrical, and mechanical work. (Id.)

The Borough solicited public bids for the four prime contracts on the Project in July 2011. The Borough awarded the General Construction contract to PVPGC on PVPGC's August 15, 2011 bid of $1, 944, 000. (See id. at Exs. B and C) The Borough and PVPGC entered into a General Construction Contract ("GCC") on September 12, 2011, which provided that the Project completion date was 270 consecutive calendar days from the date of the Notice to Proceed. (See id. at Ex. C, Art. 39) The Notice to Proceed was issued on October 3, 2011 with an effective date of October 4, 2011. (Id. at Ex. F) Accordingly, the effective Project completion date was June 30, 2012.

Article 28 of the General Conditions of the GCC describes the process for annulment:

The Bidders to whom the Contract is awarded must begin actual work on the ground within 10 days from the date of executing the Contract, or obtain from the Owner an extension of time. If the Contractor.... from any other causes whatsoever shall not carry on the work in an acceptable manner, the Owner may give notice in writing to the Contractor and his Surety, of such delay, neglect or default, specifying the same and if the Contractor, within a period of 3 days after such notice, shall not proceed in accordance therewith, then the Owner shall have full power and authority, without violating the Contract, to take the prosecution of the work out of the hands of the Contractor, to appropriate or use of any or all materials and equipment on the ground that may be suitable and acceptable, to enter into an agreement, without advertising for bids thereof, for the completion of said contract according to the terms and provisions thereof, or to use such other methods as in its opinion shall be required for the completion of said contract in an acceptable manner....

(USSC/HCC Mot. for Summ. J. Ex. T, Art. 28 (emphasis added); Borough's Br. in Opp'n Ex. C, Doc. 48 (emphasis added)). Additionally, Paragraph 3 of the GCC states:

Should the Contractor at any time... fail in any respect to prosecute the work with promptness and diligence, or fail in the performance of any of the agreements herein contained, such refusal, neglect or failure being certified by the Engineer, the Owner shall be at liberty after 3 days written notice to the Contractor to provide any such labor or materials and to deduct the cost thereof from any monies then due or thereafter to become due to the Contractor under this Contract, and if the Engineer shall certify that such refusal, neglect or failure is sufficient ground for such action, the Owner shall also be at liberty to terminate the employment of the Contractor for the said work and either call upon the Surety to complete said Contract or to enter upon the premises and take possession for the purpose of completing the work included under this Contract....

(USSC/HCC Mot. for Summ. J. Ex. K (emphasis added); Borough's Br. in Opp'n Ex. C, at CEA1785, Doc. 51 (emphasis added).)

Also on September 12, 2011, PVPGC and USSC executed a performance bond-a form copy of which CEA, on behalf of the Borough, provided PVPGC-in the same amount of the GCC, $1, 944, 000. (Id. at Ex. D; see also PVPGC's Mot. for Partial Summ. J. 8; id. at Ex. Y; USSC/HCC's Mot. for Summ. J. Ex. G.) USSC is a wholly owned subsidiary of HCC Surety Group. (Compl. ¶ 5) The performance bond ("EB Bond") named the Borough as the Owner, PVPGC as the Contractor/Principal, and USSC as the Surety. (See USSC/HCC's Mot. for Summ. J. Ex. G.)

The language in the EB Bond is almost identical to that in other standard performance bonds such as the American Institute of Architects Form A312-Performance Bond-1984 ("A312 Bond") and the EJCDC No. 1910-28-A (1996 Edition) ("EJCDC Bond"). (Id. at ¶ 12; compare id. at Ex. G with id. at Exs. H and I.) As with the A312 Bond and the EJCDC Bond, the EB Bond defines an "Owner Default" at paragraph 12.4: "Failure of the Owner, which has neither been remedied nor waived, to pay the CONTRACTOR as required by the Contract or to perform and complete or comply with the other terms thereof." (Id. at Exs. G, H, and I ¶ 12.4.)

The EB Bond and the EJCDC Bond use identical language when discussing the Surety's obligations under the bond where there is no Owner Default:

3. If there is no OWNER Default, the Surety's obligation under this Bond shall arise after:
3.1 The OWNER has notified the CONTRACTOR and the Surety at the address described in paragraph 10 below, that the OWNER is considering declaring a CONTRACTOR Default and has requested and attempted to arrange a conference with the CONTRACTOR and the Surety to be held not later than fifteen days after receipt of such notice to discuss methods of performing the Contract. If the OWNER, the CONTRACTOR, and the Surety agree, the CONTRACTOR shall be allowed a reasonable time to perform the Contract, but such an agreement shall not waive the OWNER's right, if any, subsequently to declare a CONTRACTOR Default; and
3.2 The OWNER has declared a CONTRACTOR Default and formally terminated the CONTRACTOR's right to complete the CONTRACT. Such CONTRACTOR Default shall not be declared earlier than twenty days after the CONTRACTOR and the Surety have received notice as provided in paragraph 3.1; and
3.3 The OWNER has agreed to pay the Balance of the Contract Price to:
3.3.1 The Surety in accordance with the terms of the Contract;
3.3.2 Another contractor selected pursuant to paragraph 4.3 to perform the Contract.

(Id. at Exs. G. and I ¶ 3 (emphasis added).)

The language in the A312 Bond varies slightly, indicating that when there is no Owner Default, the Surety's obligations under the A312 Bond arises after:

3.1 The OWNER has notified the Contractor and the Surety at the address described in Paragraph 10 below that the Owner is considering declaring a Contractor Default and has requested and attempted to arrange a conference with the Contractor and the Surety to be held not later than fifteen days after receipt of such notice to discuss methods of performing the Construction Contract. If the Owner, the Contractor and the Surety agree, the Contractor shall be allowed a reasonable time to perform the Construction Contract, but such an agreement shall not waive the Owner's right, if any, subsequently to declare a Contractor Default; and
3.2 The Owner has declared a Contractor Default and formally terminated the Contractor's right to complete the contract. Such Contractor Default shall not be declared earlier than twenty days after the Contractor and the Surety have received notice as provided in Sub-paragraph 3.1; and
3.3 The Owner has agreed to pay the Balance of the Contract Price to the Surety in accordance with the terms of the Construction Contract or to a contractor selected to perform the Construction Contract in accordance with the terms of the contract with the Owner.

(Id. at Ex. H ¶ 3 (emphasis added).)

Paragraph 10 of the EB Bond, the EJCDC Bond, and the A312 Bond specifies the correct address where notice should be sent: "Notice to the Surety, the OWNER or the CONTRACTOR shall be mailed or delivered to the address shown on the signature page." (Id. at Exs. G, H, and I ¶ 10.) The signature page of the EB Bond-also the first page of the EB Bond-identified USSC's address as 20 W. Aylesbury Road, Timonium, Maryland 21094. (Id. at Ex. G.) The signature page was signed by Peter V. Pirozzi, the Managing Member of PVPGC, and Gemma B. Fendler, USSC's attorney-in-fact. (Id.) Ms. Fendler was a bond manager at Moten Associates, Inc., which was an independently-owned broker engaged in the securing of surety bonds and commercial insurance. (Id. at ¶¶ 28-29.) Ms. Fendler worked at Moten Associates from June 1998 to April 2012 when she left to form her own company. (See id. at ¶ 47; Fendler Dep. 12:7-22, 13:4-19, 21:1-3, Apr. 30, 2014.)

The Borough alleges that PVPGC failed to promptly begin working on the Project after the Borough had issued its Notice to Proceed in October 2014. (Compl. ¶ 10.) PVPGC blames CEA for various design deficiencies and improper contract administration services, which PVPGC claims adversely affected its ability to perform work on the Project. (Countercl. ¶¶ 16-56.)

CEA's Project Manager, Louis D. Brown, issued a letter to PVPGC on November 7, 2011 responding to PVPGC's request for payment and also expressing concerns about PVPGC's progress on the Project. (See USSC/HCC's Mot. for Summ. J. Ex. P.) Mr. Brown mailed this letter to Gemma Fendler at two addresses: 1) Moten Associates located in Norristown, Pennsylvania, and 2) USSC located in Timonium, Maryland. (See id.) Upon receipt of and in response to Mr. Brown's letter, Emily Brennan, a Senior Claims Attorney at USSC, issued a letter by facsimile and regular mail, directing Mr. Brown on November 18, 2011, to send "all future correspondence relating to this matter to my attention at the address listed on this letterhead or via email to ebrennan@hccsurety.com." (Id. at Ex. R.) The address on the letterhead was the same Timonium, Maryland address for USSC listed on the signature page of the EB Bond: 20 W. Aylesbury Road, Timonium, Maryland 21093.

Mr. Pirozzi requested a 90-day extension of the Project completion date on March 26, 2012. (Borough's Br. in Opp'n Ex. I, Doc. 48.) On June 28, 2012, the Borough granted PVPGC a 19-day extension until July 19, 2012 to account for weather-related delays and sewer outfall removal. (Id. at Ex. M.) Later, on July 10, 2012, Mr. Brown, on behalf of the Borough, issued another letter to PVPGC extending the Project completion date to August 15, 2012 conditioned on Mr. Pirozzi's written ...


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