Developers Surety & Indemnity Co. v. Mathias et al

Filing 55

ORDER denying DSIC's motion 51 for leave to amend the complaint without prejudice. (See order for complete details.) Signed by Chief Judge Christopher C. Conner on 9/30/14. (ki)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

DEVELOPERS SURETY &
INDEMNITY CO.,
Plaintiff
v.
SHAHNAWAZ MATHIAS,
DEBRA MATHIAS,
EASTERN DEVELOPMENT &
DESIGN, and CHARTER HOMES
BUILDING COMPANY,
Defendants

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CIVIL NO. 1:12-CV-2216
(Chief Judge Conner)

ORDER
AND NOW, this 30th day of September, 2014, upon consideration of the
motion (Doc. 51) of plaintiff Developers Surety & Indemnity Co. (“DSIC”) for leave
to amend the complaint, wherein DSIC seeks, as assignee of Eastern Development
& Design’s (“Eastern”) rights pursuant to an Indemnity Agreement (“Indemnity
Agreement”) (Doc. 1-2) in which Eastern agreed to indemnify DSIC from any
liability or losses that DSIC sustained in connection with its issuance of a surety
bond, and as equitably subrogated to Eastern’s rights pursuant to the Indemnity
Agreement, to add claims against defendant Charter Homes Building Company
(“Charter”) for breach of a provision of a March 25, 2004 stipulation (“Bankruptcy
Stipulation”) (Doc. 1-4) among defendants Charter, Shahnawaz Mathias, Debra
Mathias, and Eastern, and nonparties Slater & West, Inc. (“Slater”), Sovereign

Bank, and Susquehanna Mortgage Banker Corp.,1 in which Charter agreed to
indemnify Eastern from any liability to DSIC under the Indemnity Agreement in
the event that York Township demanded that DSIC complete the development
improvements as a result of Charter’s failure to do so (“indemnification provision”)
(see Doc. 1-4 ¶ 5(k)),2 and noting that leave to amend shall be freely given “when
justice so requires,” FED . R. CIV . P. 15(a)(2), but that the court may deny
amendment if “(1) the moving party has demonstrated undue delay, bad faith or
dilatory motives, (2) the amendment would be futile, or (3) the amendment would
prejudice the other party,” Fraser v. Nationwide Mut. Ins. Co., 352 F.3d 107, 116 (3d
Cir. 2003), and that amendment is futile when the amended claims would not
survive a motion to dismiss, J.B. Hunt Transp., Inc. v. Liverpool Trucking Co., No.
1:11-CV-1751, 2013 WL 3208586, at *3 (M.D. Pa. June 24, 2013) (citing Massarsky v.

1

The Bankruptcy Stipulation provides, inter alia, that Charter shall assume
responsibility for completion of certain development improvements pursuant to a
November 28, 2001 Subdivision Improvements Performance Bond (“Subdivision
Bond”) (Doc. 1-3) that DSIC guaranteed on behalf of Slater, as principal, to York
Township, as obligee.
2

Notwithstanding the fact that the Bankruptcy Stipulation provides that
Charter shall indemnify Eastern “from any and all liability” to DSIC under the
Indemnity Agreement (Doc. 1-4 ¶ 5(k)) (emphasis added), Charter posits that the
Bankruptcy Stipulation indemnifies Eastern against loss (Doc. 54 at 8, 9). Because
the court concludes that Eastern’s indemnification claim against Charter has not
accrued whether construed as a claim for indemnification against liability or loss,
see infra, it is unnecessary to characterize the indemnification provision further.
2

Gen. Motors Corp., 706 F.2d 111, 125 (3d Cir. 1983)),3 and further noting that a claim
for indemnification against liability under Pennsylvania law4 accrues when liability
has become “fixed and established,” Coleman v. City of Bradford, 204 A.2d 260, 261
(Pa. 1964), that district courts in this circuit, interpreting Pennsylvania law, have
concluded that liability generally does not become fixed and established until either
the court has entered a judgment against the indemnitee or a settlement agreement
has been reached, Lincoln Gen. Ins. Co. v. Kingsway Am. Agency, Inc., No.
1:11-CV-1127, 2013 WL 458449, at *3 (M.D. Pa. Feb. 6, 2013) (citing Ins. Comm’r of
Conn. v. Novotny, No. 07-262 ERIE, 2009 WL 1653553, at *3-4 (W.D. Pa. June 11,
2009)), and that a claim for indemnification against loss under Pennsylvania law
generally accrues only when the indemnitee makes an actual payment on behalf of
the indemnitor, id. (quoting Novotny, 2009 WL 1653553, at *3), and observing that
the court expressly declined to enter default judgments against Shahnawaz
Mathias, Debra Mathias, or Eastern5 in its March 6, 2014 order (Doc. 44) resolving
DSIC’s motions for default judgment, that DSIC does not aver that Eastern entered

3

In accordance with the standard for deciding a motion to dismiss, the court
will “accept all well-pleaded facts in the [amended] complaint as true, and view
them in the light most favorable” to DSIC. See Carino v. Stefan, 376 F.3d 156, 159
(3d Cir. 2004).
4

The court presides over this case pursuant to diversity jurisdiction. Sitting
in diversity, the court must apply the substantive law of Pennsylvania. Erie R. Co.
v. Tompkins, 304 U.S. 64, 78 (1938); Burgh v. Borough Council of Borough of
Montrose, 251 F.3d 465, 474 (3d Cir. 2001).
5

The court notes that Eastern is an indemnitor under the Indemnity
Agreement but an indemnitee with respect to the Bankruptcy Stipulation.
3

into any settlement agreements with respect to the surety bond, and that DSIC does
not allege that Eastern indemnified DSIC for any of its losses (see Doc. 1 ¶ 50) or
otherwise made any payments in connection with its obligations under the surety
bond, and it appearing that DSIC’s proposed breach of contract claim against
Charter pertains solely to Eastern’s potential cause of action for indemnification
pursuant to the indemnification provision of the Bankruptcy Stipulation (see Doc.
51-2 ¶¶ 51-60; Doc. 52 at 9 (“[Charter] breached the terms of the Bankruptcy
Stipulation when [Charter] failed to indemnify or hold Eastern harmless for
Eastern’s liability to [DSIC].”)), and therefore that DSIC’s proposed breach of
contract claim against Charter has not yet accrued,6 and it further appearing that
Eastern was not a principal under the Subdivision Bond or otherwise primarily

6

That DSIC’s indemnification claim may have accrued against Eastern (see
Doc. 52 at 9) does not compel the conclusion that Eastern’s indemnification claim
has accrued against Charter in the absence of a judgment against Eastern or a
settlement imposing an obligation on Eastern. See Novotny, 2009 WL 1653553, at
*3-4.
4

responsible for completion of the development improvements,7 and finding that
DSIC’s proposed breach of contract claim against Charter would be futile at this
juncture, it is hereby ORDERED that:
1.

DSIC’s motion (Doc. 51) for leave to amend the complaint is DENIED
without prejudice.

/S/ CHRISTOPHER C. CONNER
Christopher C. Conner, Chief Judge
United States District Court
Middle District of Pennsylvania

7

Equitable subrogation is available under Pennsylvania law. In re Estate of
Devoe, 74 A.3d 264, 267 (Pa. Super. Ct. 2013). This equitable doctrine “is a means of
placing the ultimate burden of a debt upon the one who in good conscience ought to
pay it, and is generally applicable when one pays out of his own funds a debt or
obligation that is primarily payable from the funds of another.” Employers Ins. of
Wausau v. Commonwealth, Dep’t of Transp., 865 A.2d 825, 833 (Pa. 2005) (quoting
High-Tech-Enters., Inc. v. Gen. Accident Ins. Co., 635 A.2d 639, 642 (Pa. Super. Ct.
1993)) (internal quotation marks omitted); accord U.S. Fid. & Guar. Co. v. United
Penn Bank, 524 A.2d 958, 963 (Pa. Super. Ct. 1987) (“The equitable doctrine of
subrogation is grounded in the principle that, when one, not a volunteer, pursuant
to an obligation, fulfills the duties of another, he is entitled to assert the rights of
that other against a third party.” (quoting Aetna Cas. & Sur. Co. v. J. F. Brunken &
Son, Inc., 357 F. Supp. 290, 293 (D.S.D. 1973)). When a surety pays a debt for which
another is primarily liable, as DSIC notes, “it succeeds both to the rights of the
principal and obligee.” Fid. & Deposit Co. of Md. v. Westra Constr., Inc., No.
1:08-CV-1219, 2010 WL 1904524, at *4 (M.D. Pa. May 10, 2010) (citing Ram Constr.
Co., Inc. v. Am. States Ins. Co., 749 F.2d 1049, 1055 (3d Cir. 1984)). In the case sub
judice, DSIC does not allege facts sufficient to support an inference that Eastern, as
opposed to Slater or Charter, was a principal under the Subdivision Bond or was
primarily liable for completion of the development improvements. While
Shahnawaz Mathias T/A Eastern apparently served as principal under the
Indemnity Agreement (Doc. 1-2), the contracts at issue imply that Eastern’s alleged
debt took the form of indemnification to DSIC rather than any primary liability to a
third party. To the extent that DSIC is equitably subrogated to Eastern’s rights
under the Bankruptcy Stipulation, DSIC’s proposed claim against Charter for
breach of the indemnification provision therein would not yet be ripe, as explained
supra. See Bell v. Slezak, 812 A.2d 566, 574 n.8 (Pa. 2002) (“[A] subrogee has no
greater rights than those held by the subrogor . . . .”).