                                                                                                                           Opinions of the United
2001 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-13-2001

Krueger Assoc Inc v. Amer Dist Telegraph
Precedential or Non-Precedential:

Docket 00-1125




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Recommended Citation
"Krueger Assoc Inc v. Amer Dist Telegraph" (2001). 2001 Decisions. Paper 75.
http://digitalcommons.law.villanova.edu/thirdcircuit_2001/75


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Filed April 13, 2001

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 00-1125 / 00-1138

KRUEGER ASSOCIATES, INC.,
Individually and Trading as
National Fulfillment Services,

v.

THE AMERICAN DISTRICT TELEGRAPH
COMPANY OF PENNSYLVANIA;
ADT SECURITY SYSTEMS, INC.,

ADT SECURITY SYSTEMS INC.,

Defendant/Third-Party Plaintiff

v.

EUGENE KRUEGER, Individually
d/b/a HOLMES CORPORATE CENTER
d/b/a HOLMES INDUSTRIAL OFFICE CENTER;
SAMUEL MENDICINO, Individually
d/b/a HOLMES CORPORATE CENTER
d/b/a HOLMES INDUSTRIAL OFFICE CENTER,

       Third-Party
       Defendants/Appellants
       (No. 00-1125)

Krueger Associates, Inc.,

       Appellant (No. 00-1138)

Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 93-cv-01040)
(District Judge: Honorable Robert F. Kelly)
Argued January 19, 2001

Before: ROTH and BARRY, Circuit Judges
SHADUR,* District Judge

(Opinion filed April 13, 2001)

       Timothy T. Myers, Esquire (Ar gued)
       John M. Elliott, Esquire
       Patricia C. Collins, Esquire
       Elliott Reihner Siedzikowski &
        Egan, P.C.
       Union Meeting Corporate Center
       925 Harvest Drive
       Blue Bell PA 19422

        Attorneys for Plaintiff/Appellant

       Howard J. Bashman, Esquire
        (Argued)
       Jeremy D. Mishkin, Esquire
       Jill Baisinger, Esquire
       Montgomery McCracken Walker &
        Rhoads, LLP
       123 South Broad Street
       Philadelphia PA 19109

       Frederick T. Lachat, Jr., Esquir e
        (Argued)
       Margolis Edelstein, Esquire
       The Curtis Center, Fourth Floor
       Independence Square West
       6th & Walnut Streets
       Philadelphia PA 19106

        Attorneys for Defendants and
Third-Party Plaintiffs/Appellees
_________________________________________________________________

* Honorable Milton I. Shadur, United States District Judge for the
Northern District of Illinois, sitting by designation.

                                 2
       Jeffrey B. McCarron, Esquire
        (Argued)
       Swartz Campbell & Detweiler
       1601 Market Street, 34th Floor
       Philadelphia PA 19103

        Attorneys for Third-Party
       Defendants/Appellants

OPINION OF THE COURT

SHADUR, District Judge:

This appeal stems from a fire that occurred on February
4, 1992 at a corporate office building owned by one of the
appellants in this action, Holmes Corporate Center
("Holmes"). Krueger Associates, Inc., individually and
trading as National Fulfillment Services ("National
Fulfillment"), a commercial tenant at the corporate center
whose offices were damaged by the fir e, is the other
appellant.1 American District T elegraph Company of
Pennsylvania and ADT Security Systems, Incorporated
(collectively referred to as "ADT ," treated hereafter as a
singular noun for convenience), which providedfire and
burglar alarm services at the corporate center pursuant to
a series of written agreements with Holmes, ar e appellees.

National Fulfillment initiated the action on February 26,
1993 via a multi-count complaint against ADT , seeking to
recover its uninsured losses from thefire. Federal
jurisdiction was invoked under 28 U.S.C. S1332 based on
the parties' diverse citizenship. At their cor e, National
Fulfillment's claims rested on the allegation that ADT's
alarm system failed to alert fire fighters of the blaze in a
timely manner. That alleged failure supposedly allowed the
fire to burn out of control, causing National Fulfillment to
_________________________________________________________________

1. Eugene Krueger was one of two general partners in Holmes and was
the sole shareholder of Krueger Associates at the time of the fire. We
refer to appellants as "Holmes" and "National Fulfillment" to avoid any
confusion that might result from the use of the Krueger name to
designate either appellant.

                               3
suffer commercial and property losses for which it was
underinsured.

Several factors posed potential problems for National
Fulfillment's action against ADT. For one, National
Fulfillment itself had not contracted with ADT for the
provision of alarm services. Instead, ADT provided alarm
services to the office complex pursuant to a written series
of agreements with Holmes. Additionally, when ADT
contracted with Holmes to provide alarm service to Holmes
(in the "Holmes-ADT Contract"), it substantially limited the
scope of its undertaking by a contractual pr ovision
disclaiming all warranties and expressly limiting liability.
Although National Fulfillment claims to have been unaware
of that provision in the Holmes-ADT Contract, it will be
recalled that Eugene Krueger held an ownership interest in
both Holmes and National Fulfillment (see n.2).

After National Fulfillment sued ADT, the latter brought
Holmes into the litigation by filing a thir d-party complaint
against it. In that third-party complaint ADT sought
defense and indemnification from Holmes against National
Fulfillment's suit pursuant to this provision in Holmes-ADT
Contract PE:

       IN THE EVENT ANY PERSON, NOT A PARTY TO THIS
       AGREEMENT, SHALL MAKE ANY CLAIM OR FILE ANY
       LAWSUIT AGAINST ADT FOR FAILURE OF ITS
       EQUIPMENT OR SERVICE IN ANY RESPECT,
       [HOLMES] AGREES TO INDEMNIFY, DEFEND AND
       HOLD ADT HARMLESS FROM ANY AND ALL SUCH
       CLAIMS AND LAWSUITS INCLUDING THE PA YMENT
       OF ALL DAMAGES, COSTS AND ATTORNEYS FEES.

Holmes' answer to the third-party complaint asserted a
cross-claim against National Fulfillment, claiming that
National Fulfillment had a contractual obligation to provide
a defense of, and indemnification for, ADT's claims against
Holmes.

ADT then moved for summary judgment both against
National Fulfillment on the latter's claims against ADT and
against Holmes on ADT's claim for defense and
indemnification. On December 20, 1994 the district court
granted summary judgment in favor of ADT with r espect to

                               4
its claim for defense and indemnity from Holmes, but it
denied the motion as to National Fulfillment's claims,
apparently to allow National Fulfillment to conduct
discovery. In the same order the district court ruled that
the conflict of interest created by Eugene Krueger's dual
role as sole shareholder of National Fulfillment and as one
of two general partners of Holmes precluded Holmes'
control of ADT's defense. After discovery closed almost two
years later, in October 1996 the district court granted
ADT's renewed motion for summary judgment on all of
National Fulfillment's claims.

Holmes and National Fulfillment appealed those
decisions, but on June 25, 1997 a panel of this Court
dismissed those appeals for lack of jurisdiction because
some issues in the litigation still remained unresolved:
quantification of the amount of attorneys' fees recoverable
by ADT pursuant to the Holmes-ADT Contract and a ruling
on Holmes' crossclaim for indemnification fr om National
Fulfillment based on their lease. Those issues wer e later
ruled on by the district court. It held that ADT was entitled
to an award of $313,185.83 in attorneys' fees, reducing
ADT's original request of $403,440.83 by $90,255. It also
found that Holmes was not entitled to indemnification from
National Fulfillment based on the lease.

National Fulfillment appeals the grant of summary
judgment against it and the district court's denial of
National Fulfillment's motions for sanctions against ADT for
alleged discovery violations. Holmes appeals (1) the district
court's order that ADT was entitled to defense and
indemnification under the Holmes-ADT Contract, (2) the
district court's rejection of Holmes' cr oss-claim against
National Fulfillment and (3) the court's fee deter mination.
We will begin with the issues raised by National Fulfillment,
then turn to those raised by Holmes. W e affirm the orders
of the district court in all respects.

National Fulfillment's Appeal

We first examine National Fulfillment's contention that
the district court improperly granted summary judgment on
its claims against ADT. National Fulfillment appeals the

                                5
dismissal of its five claims sounding in (1) strict liability,
(2) negligence, (3) breach of implied warranty, (4) fraud and
(5) negligent misrepresentation.

Initially we note, despite National Fulfillment's
protestations to the contrary, that nothing pr ohibited the
district court from ruling on ADT's renewed motion for
summary judgment. Under the law of the case doctrine the
district court's denial of ADT's initial summary judgment
motion did not create any bar to the court's later
reconsideration of the renewed motion (see, e.g., Deisler v.
McCormack Aggregates Co., 54 F .3d 1074, 1086 n. 20 (3d
Cir. 1995), quoting Schultz v. Onan Corp ., 737 F.2d 339,
345 (3d Cir. 1984)). After having tur ned down ADT's first
try without opinion in an apparent effort to allow National
Fulfillment to conduct discovery, the district court surely
acted within its discretion in reconsidering the motion post-
discovery.2

We turn then to National Fulfillment's substantive claims
against ADT, with Pennsylvania law pr oviding the rules of
decision. None survives analysis.

First, we agree with the district court that National
Fulfillment has no cause of action in strict liability against
ADT (see Lobianco v. Property Prot., Inc., 437 A.2d 417 (Pa.
Super. Ct. 1981)). Three members of the seven-judge court
in Lobianco rejected the application of Restatement (Second)
of Torts ("Restatement") S402A because (just as in this case)
the provider of an alarm system (in that instance a burglar
alarm) was not being sued by an "otherwise defenseless
victim" (id. at 424): There the homeowner (just like National
Fulfillment here) knew everything about the value of the
property at risk (as the alarm system pr ovider did not),
could get insurance against the loss and should not be
permitted to shift the risk of loss to the alarm system
provider "as a cost of doing business" (id. at 424-25). Two
other members of the court joined in holding Restatement
S402A inapplicable, for the reason that (just as in this case)
the harm to the owner's property was the foreseeable
consequence of the alarm system's malfunctioning, not the
_________________________________________________________________

2. Indeed, any claimed error the district court might arguably have made
in reconsidering the motion would have been har mless in any event.

                                6
result of a product that was itself defectively manufactured
and hence unsafe (id. at 426-27). In sum, National
Fulfillment's attempted invocation of the Restatement's
strict liability provision runs counter to Pennsylvania law.

Nor is there any merit to its negligence claim. ADT owed
no legal duty in tort to National Fulfillment when it
contracted to provide Holmes with fir e alarm services (see
Gerace v. Holmes Prot. of Phila., 516 A.2d 354, 358 (Pa.
Super. Ct. 1986)). And there is no basis for finding such a
duty under subsection (c) of Restatement S324A to enable
National Fulfillment to proceed in negligence against ADT,
for just as in Gerace (see id.) ther e is no evidence of
National Fulfillment's harm having come fr om its reliance
on ADT's undertaking to Holmes.3 To the contrary, National
Fulfillment's nebulous contention that it suf fered harm
because it decided to forgo other protective services in
reliance on the ADT system is not only unsupported by the
record but is actually contradicted by the evidence that it,
at the recommendation of its insurance company, installed
Halon extinguishers before the fire.

Moreover, any actual reliance by National Fulfillment
(and none has been shown) would not have been
reasonable. ADT's system was a detection system, not a fire
suppression system. Nothing prevented National Fulfillment
from installing fire suppression devices (as, for example, a
sprinkler system). National Fulfillment cannot use Holmes'
purchase of alarm services from ADT to excuse its own
failure to take steps adequately calculated to protect itself
from fire-related losses.

National Fulfillment's third claim--br each of implied
warranty--similarly falls flat. Under Pennsylvania law
implied warranty claims by parties not in privity with the
_________________________________________________________________

3. Though National Fulfillment's counsel made a more general reference
to Restatement S324A during oral argument, its briefs on appeal focused
entirely on its claim of reliance (the subject covered by subsection (c)).
It
is scarcely in a position to expand its contentions belatedly in that
fashion, but in any event subsection (b) is plainly inapplicable by its
terms, and any subsection (a) claim would be scotched by the holding in
Turbe v. Government of the Virgin Islands, 938 F.2d 427, 432 (3d Cir.
1991).

                               7
defendant may be maintained only in cases gover ned by the
UCC's warranty provisions or by RestatementS402A (see
Manor Junior Coll. v. Kaller's Inc., 507 A.2d 1245, 1249 (Pa.
Super. Ct. 1986)). That alone would suffice to affirm the
dismissal of the claim: We have already found Restatement
S402A inapplicable, and it is at best questionable that the
UCC applies in the present context.4 But even if we were to
adopt the doubtful premise that UCC's Art. 2 could
potentially come into play, it is plain that ADT successfully
disclaimed all implied warranties in Holmes-ADT Contract
PE, and that the disclaimer was effective against National
Fulfillment (see 13 Pa. C.S. S2316, S2318 cmt. 1).

Finally, National Fulfillment's fourth and fifth claims--
fraud and negligent misrepresentation--fail as well. Without
specific citation to the record, National Fulfillment asserts
in conclusory fashion that ADT made misrepr esentations
that could be the basis for such claims. But National
Fulfillment's only predicate for that contention rests on
ADT's alleged discovery violations that occurr ed after the
fire. It goes without saying that an asserted
misrepresentation that post-dated thefire could not have
caused any of National Fulfillment's fir e-related injuries.

And any notion that ADT's alleged discovery violations
prevented National Fulfillment from discovering any
possible misrepresentations ADT might have made before
the fire is, as the district court noted, absurd. By definition
any representation on which a party has purportedly relied
has to be known to that party--else how could reliance take
place? National Fulfillment's total failur e to have identified
any such misrepresentations by ADT is fatal to any claim of
_________________________________________________________________

4. Although National Fulfillment contends that Cucchi v. Rollins Prot.
Servs. Co., 574 A.2d 565 (Pa. 1990) holds that the UCC applies to
transactions involving the lease of goods (specifically, a burglar alarm
system), that seriously overstates Cucchi's holding. Cucchi involved a
plurality opinion in which only two of the seven justices found that UCC
Art. 2 applied to the lease of the burglar alarm system, while the
majority of the justices disavowed that proposition. Since then the
Pennsylvania Supreme Court has emphasized that Cucci's precedential
authority "is limited to the facts of that case" (Keblish v. Thomas Equip.
Ltd., 660 A.2d 38, 40 n.1 (Pa. 1995))--the type of damnation by faint
praise that signals an exceedingly weak reed on which to lean.

                               8
reliance, which is an essential component of any claim of
fraud or negligent misrepresentation.

That leaves just two tag ends to be cleaned up in this
part of the appeal. First, the absence of any viable
substantive claim of course deprives National Fulfillment's
request for punitive damages of any underpinning. We also
affirm the denial of that claim. Second, we likewise affirm
the district court's rejection of National Fulfillment's
requests for sanctions based on ADT's alleged spoliation of
evidence. Simply put, National Fulfillment has pr ovided no
basis to conclude that the district court committed an
abuse of discretion in denying those requests.5

Holmes' Appeal

As for appellant Holmes, it first challenges on two
grounds the district court's determination that it was
required to defend ADT pursuant to a clause in the
Holmes-ADT Contract:6

        1. Holmes contends that the contractual pr ovision on
       which the defense and indemnity provision was based
       was inconspicuous and therefore unenfor ceable.

        2. Even if the provision were found to be enforceable,
       Holmes argues that it assertedly did not r equire
       Holmes to pay ADT's legal costs associated with
       defending against National Fulfillment's suit.

Both of those contentions also fail.
_________________________________________________________________

5. We are relatedly constrained to observe that the presentation of the
"facts" relating to this appeal in National Fulfillment's briefs before us
was improperly one-sided, not at all in confor mity with the
responsibility
of an appellant to tender an objective portrayal. And National Fulfillment
spent an inordinate amount of time arguing that ADT's alleged
commission of discovery violations should serve as a predicate for
liability. Those unsuccessful efforts seem little more than an attempted
papering over of the weakness of its original claims.

6. Both sides agree that because ther e is no judgment against ADT, any
issues involving the validity of the indemnity pr ovision are moot. All
that
remains in this portion of the appeal is the question whether the
Holmes-ADT Contract required Holmes to pay ADT's defense costs.

                               9
As to Holmes' first argument, Pennsylvania law does
countenance certain claims of unconscionability when
"based on inconspicuous or unclear contractual language,
in particular, if the parties have unequal bargaining power"
(Harris v. Green Tree Fin. Corp., 183 F.3d 173, 182 (3d Cir.
1999)). But simply to state that proposition confirms its
inapplicability here. As the district court noted, the
controlling provision was contained in a boldface paragraph
written in its entirety in capital letters--typography that
distinguished it from other provisions on the reverse side of
the contract. And the contract's text, also in a boldface
legend set forth immediately above the signatur e line,
specifically directed the signer's attention to the terms and
conditions on that reverse side. Nor is ther e any room for
disputing the clarity of the provision. Finally, nothing in the
evidence suggests any material (or indeed any) dif ference in
bargaining power between ADT and Holmes. In sum, there
is no basis for holding the provision unconscionable.

Holmes also says that it was not requir ed to pay ADT's
defense costs according to the terms of the Holmes-ADT
Contract. According to Holmes, the absence of any
judgment against ADT precludes an award of attorneys'
fees under the contract. Not so, for Holmes-ADT Contract
PE required Holmes both to indemnify and to defend ADT.
So when National Fulfillment filed suit against ADT, that
event alone triggered Holmes' obligation to defend ADT.
Holmes' assertion that the contractual defense pr ovision
somehow extends only to meritorious claims has no basis
whatever. To the contrary, the pr ovision specifies that
Holmes' obligation extends to "any claim or lawsuit." We
therefore hold that Holmes is expr essly obligated by the
Holmes-ADT Contract to pay ADT's defense costs. 7

Next, Holmes appeals the district court's deter mination
that National Fulfillment was not requir ed to indemnify
Holmes for Holmes' expenses incurred in paying ADT's
attorneys' fees pursuant to the Holmes-ADT Contract.
Holmes contends that it is entitled to indemnification
_________________________________________________________________

7. Holmes also contends that it should be per mitted to participate in or
control ADT's defense. Because our disposition ends this case, any such
prospective request for participation or control is rendered moot.

                               10
pursuant to this provision in its lease to National
Fulfillment:

       Lessee [National Fulfillment] shall defend, indemnify,
       and hold harmless Lessor [Holmes] fr om and against
       any and all claims, demands, suits, damages, liability,
       and costs (including counsel fees and expenses) arising
       out of or in any manner connected with any act or
       omission, negligent or otherwise of Lessee, thir d
       persons, or any of their agents, servants or employees
       which arise out of or are in any way connected with the
       erection, maintenance, use, operation, existence or
       occupation of the Demised Premises, hallways,
       entranceways, stairs or any other common areas
       (exterior or interior), and the streets, driveways, alleys,
       lawns, sidewalks and curbs adjacent thereto including
       those resulting from any work in connection with the
       alterations, changes, new construction or demolition.

We agree with the district court that the quoted provision
plays no role here. ADT's suit against Holmes, for which
Holmes seeks indemnity, was predicated upon Holmes'
breach of its contract with ADT. As such it does not "arise
out of," nor is it "in any way connected with," the "erection,
maintenance, use, operation, existence or occupation of the
Demised Premises" in the normal sense of that lease
language. Hence that claim by Holmes is also lacking in
merit.

That leaves Holmes' final challenge: its assertion that the
$313,185.83 awarded to ADT in attorneys' fees was
excessive. Although Holmes has ignored the applicable
standard of review, a district court's award of attorneys'
fees is reversible only for abuse of discr etion (Washington v.
Philadelphia County. Ct. Com. Pl., 89 F.3d 1031, 1034 (3d
Cir. 1996)).

In its 14-page order the district court explained its
reduction of ADT's requested fees by $90,255, reflecting (1)
time spent in reviewing the indemnification claim against
Holmes, (2) time that the court considered excessive or
redundant and (3) expenses considered to be non-
reimbursable overhead. Despite that car efully articulated
set of downward adjustments, Holmes char ges that the

                               11
district court abused its discretion by not r educing the
award by a greater percentage. But that ipse dixit is
unaccompanied by any reasoned basis for labeling the
district court's determination an abuse of discretion. We
affirm that final aspect of the district court's decisions.

Conclusion

We AFFIRM the district court's grant of summary
judgment on National Fulfillment's claims against ADT, its
denial of sanctions for ADT's alleged discovery violations, its
decision that National Fulfillment is not r equired to
indemnify Holmes and its determination that Holmes is
required to pay ADT $313,185.83 pursuant to the Holmes-
ADT Contract.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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