Katz v. Township of Westfall ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
8-1-2008
Katz v. Westfall
Precedential or Non-Precedential: Non-Precedential
Docket No. 07-2692
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 07-2692
_____________
DAVID H. KATZ;
BARBARA D. KATZ,
Appellants
v.
TOWNSHIP OF WESTFALL; KEITH PETERS;
KENNETH THIELE; JAMES MUIR,
as members of the Township of Westfall
Board of Supervisors, in their individual capacities
Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civil No. 03-cv-02377)
District Judge: Honorable Thomas M. Blewitt
Submitted Under Third Circuit LAR 34.1(a)
July 3, 2008
Before: RENDELL, SMITH and FISHER, Circuit Judges.
(Filed August 1, 2008)
OPINION OF THE COURT
RENDELL, Circuit Judge.
David H. Katz and Barbara D. Katz (“the Katzes”) appeal the Magistrate Judge’s
order granting the motion of Township of Westfall (“the Township”) under Federal Rule
of Civil Procedure 60(b) to set aside the judgment against it. For the reasons that follow,
we will reverse the Magistrate Judge’s ruling and reinstate the judgment.
Because we write only for the parties, we will set forth only those facts relevant to
our analysis. The Katzes own approximately 740 acres of residential property
(“Rosetown”) and 3.4 acres of commercial property located in Westfall Township,
Pennsylvania. Since 1994, the Katzes have been involved in litigation with the
Township, centering around the properties. In 1999, the Katzes won a $7 million
judgment against the Township. In 2001, the Katzes entered into an Equitable Settlement
Agreement (“ESA”), and shortly thereafter a Settlement Agreement/Release (“SAR”),
with the Township pursuant to which the Township would serve the Katzes’ property
with central/public sewer and water systems in return for the Katzes’ compromising the
$7 million judgment against it. In December 2003, after the Township failed to comply
with the ESA/SAR, the Katzes filed an action for breach of contract. The Magistrate
Judge issued a memorandum and order, finding that the Township had failed to provide
water and sewer services, and subsequently issued another order (“the August 2005
Order”), clarifying and defining the requirements under the ESA/SAR decree, giving the
Township an 18-month extension to comply fully with them.
2
As is relevant to our decision, the August 2005 Order required, inter alia, that the
Township enter into contracts to provide water service to the Katzes’ property with the
Katzes named as third-party beneficiaries.1 The third-party beneficiary status was
necessary to enable the Katzes to enforce and protect their rights to water service because
the Township would be contracting with an outside utility company to deliver the
requisite services, not providing them itself. Pursuant to the August 2005 Order, water
and sewer service was to be provided to Rosetown within 18 months, that is, on or before
February 4, 2007.
The August 2005 Order also made clear that the Township’s failure to comply with
the ESA/SAR or the Order would result in the entry of a money judgment against it. It
stated, “[i]f the Township does not fully comply with any and all terms, obligations and
duties contained in the ESA/SAR and/or this Order, the Township stipulates that
Judgment shall be entered against it granting Katz all remedies and damages requested . .
. .” (App. 37.) Pursuant to the August 2005 Order, the Township executed a stipulated
judgment which the Katzes were to hold “until such time as there is a breach of the
ESA/SAR and/or this Order when the Stipulation may be filed by Katz with the Court
1
The relevant portion of the August 2005 Order states: “The Township shall provide
1,571 EDUs of water capacity to the Katz Properties and shall construct the water line to
the property line of the Westfall Commercial Property and to the entrance to Rosetown at
Rosetown Trail to accommodate the Katz Uses and the Katz Properties. The Township
shall enter into one or more contracts with Utilities, all with Katz as third party
beneficiary, to provide the water capacity and lines.” (App. 31.)
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Clerk and Judgment will be entered by the Court for Katz.” Id. The stipulated judgment
also required the Township to pay any litigation costs and expenses the Katzes incurred to
enforce the ESA/SAR and the August 2005 Order.
On December 27, 2006, the Katzes received a form of water service agreement
(“WSA”) between the Township and the Matamoras Authority for their properties. It
required that the Katzes sign as parties to the contract and indemnify the Matamoras
Authority “from any and all actions, claims, and demands arising from or by virtue of this
Agreement . . . .” (App. 227.) The Katzes refused to sign the proposed WSA, claiming
that it failed to provide them with third-party beneficiary status and, therefore, did not
comply with the ESA/SAR Decrees and the August 2005 Order. They received no other
water service agreements and Rosetown did not receive the requisite water capacity by
February 4, 2007.
Claiming various breaches of the ESA/SAR Decrees and the August 2005 Order,
the Katzes filed the stipulated judgment with the District Court on February 16, 2007.
Pursuant to the stipulated judgment, they also filed a Motion for Litigation Costs and
Expenses incurred to enforce the ESA/SAR. In response, the Township moved to set
aside the judgment under Federal Rule of Civil Procedure 60(b), alleging that the Katzes
were mistaken, acted in bad faith, and the judgment was void because the Township had
4
not committed any breach.2 After a hearing, the Magistrate Judge concluded that the
Township had not breached any provision of the August 2005 Order and consequently the
filing of the stipulated judgment was not justified. The Magistrate Judge issued an order
granting the Township’s 60(b) motion and setting aside the stipulated judgment. He also,
therefore, denied the Katzes’ Motion for Litigation Costs and Expenses without prejudice.
On June 4, 2007, the Katzes timely appealed, requesting that we reinstate the judgment.
Due to the “overriding interest in the finality and repose of judgments,” Mayberry
v. Maroney, 558 F.2d 1159, 1164 (3d Cir. 1977), a Rule 60(b) motion is considered
“extraordinary relief which should be granted only where extraordinary justifying
circumstances are present.” Plisco v. Union R. Co., 379 F.2d 15, 16 (3d Cir. 1967). We
review a decision to grant a Rule 60(b) motion for abuse of discretion. See Bohus v.
Beloff, 950 F.2d 919, 924 (3rd Cir. 1991). We will find an abuse of discretion when “‘the
district court’s decision rests upon a clearly erroneous finding of fact, an errant
conclusion of law or an improper application of law to fact.’” Reform Party of Allegheny
County v. Allegheny County Dep’t of Elections, 174 F.3d 305, 311 (3d Cir. 1999) (en
banc) (quoting Int’l Union, UAW v. Mack Trucks, Inc., 820 F.2d 91, 95 (3d Cir. 1987)).
2
Rule 60(b) provides: “On motion for just terms, the court may relieve a party or its
legal representative from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence;
(3) fraud, misrepresentation or other misconduct of an adverse party; (4) a void judgment;
(5) the satisfactions, release or discharge of a judgment or inequity in the prospective
application of the judgment; or (6) any other reason justifying relief from operation of the
judgment.” Fed. R. Civ. P. 60(b).
5
The Katzes claim numerous errors that require reversal of the Magistrate Judge’s
order and reinstatement of the stipulated judgment. We need not reach all of their
arguments, however, because we find that the Magistrate Judge’s conclusion – that the
Katzes were third-party beneficiaries to the WSA as required by the ESA/SAR Decree
and the August 2005 Order – was erroneous and, therefore, the entry of the Rule 60(b)
order was an abuse of discretion.
Under the settlement decrees, the Township agreed to make the Katzes third-party
beneficiaries to all contracts to provide water capacity and lines. The contracts were
supposed to bind the Township and the water service provider to the benefit of the
Katzes’ Rosetown property, thereby entitling the Katzes to enforce the contract or receive
compensation should any breach occur. The proposed WSA, however, names the Katzes
as parties to the agreement and requires them to indemnify the water service provider
against any claims arising from the agreement. Clearly, the proposed WSA does not
bestow third-party beneficiary status on the Katzes. It instead identifies them as actual
parties throughout. It provides that “[f]ollowing completion of the Township Project or a
portion thereof and connection of the Properties or portions thereof to the Borough
Authority System, Katz shall be responsible for all water rates imposed by the Borough
Authority.” (App. 226.) Indicating the Katzes’ intended status as parties, a later
provision states:
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In the event of a default of this Agreement by Katz, the
Township, or the Township Authority, this Agreement may be
terminated at will by the Borough Authority, and, upon such
termination, the Borough Authority shall have no obligation to
provide water service to the Properties . . . .
Id. Similarly, in return for the services agreed to by Matamoras, the Katzes would be
required to release, indemnify and hold harmless Matamoras from “any and all actions,
claims, and demands arising from or by virtue” of the WSA. (App. 227.)
Notwithstanding these many provisions, the Township argues that the paragraph of
the WSA entitled “Assignment,” which states “it is understood and agreed that the water
capacity reserved hereunder is for the benefit of the Properties and Katz, and, as such,
may be assigned, transferred, or subleased to successors in interest,” (App. 227),
represents the parties’ agreement that the Katzes be third-party beneficiaries. This is
without any merit. The very language the Township cites merely states that the Katzes’
rights as parties to the agreement are assignable. Neither that paragraph nor any other in
the WSA identifies the Katzes as third-party beneficiaries. Furthermore, by definition, a
party to an agreement cannot be a third-party beneficiary to that same agreement. Sanford
Inv. Co., Inc. v. Ahlstrom Mach. Holdings, Inc., 198 F.3d 415, 424 (3rd Cir. 1999)
(quoting Visor Builders, Inc. v. Devon E. Tranter, Inc., 470 F. Supp. 911, 923 (M.D. Pa.
1978) (“[A] third-party beneficiary is ‘one who, although not a party to the contract, and
hence not in privity with the promisor . . . is permitted to enforce the contract between the
promisor and the promisee for its (the third-party beneficiary’s) benefit.’”)). Because the
7
Katzes were intended parties to the WSA, they cannot also be third-party beneficiaries to
the agreement.
Moreover, if the Katzes had executed the WSA, they would have agreed to
indemnify the Matamoras Authority with the result that, had the Matamoras Authority
violated the contract, they would be without remedy against it. This too indicates their
lack of third-party beneficiary status. In order to be a third-party beneficiary, one must be
entitled to enforce the contract against the promisor, in this case the Matamoras
Authority. Livingstone v. North Belle Vernon Borough, 91 F.3d 515, 526 n.11 (3d Cir.
1996) (citing Restatement (Second) of Contracts § 304). Here, the WSA’s
indemnification provision would shift legal responsibility for a breach to the Katzes and
prevent them from being able to enforce the contract.
The Township advances a second, alternative argument that because the Katzes
did not execute the WSA, they are neither parties to it nor required to indemnify the
Matamoras Authority and, thus, must be third-party beneficiaries. Despite these
assertions, the fact that the Katzes did not sign the WSA does not render them intended
beneficiaries, rather than intended parties. See Shovel Transfer Storage, Inc. v. Penn.
Liquor Control Bd., 739 A.2d 133, 138 (Pa. 1999) (“It is firmly settled that the intent of
the parties to a written contract is contained in the writing itself.”).
Under longstanding Pennsylvania law, “in order for a third party beneficiary to
have standing to recover on a contract, both contracting parties must have expressed an
8
intention that the third party be a beneficiary, and that intention must have affirmatively
appeared in the contract itself.” Scarpitti v. Weborg, 609 A.2d 147, 150 (Pa. 1992) (citing
Spires v. Hanover Fire Ins. Co., 70 A.2d 828, 830-31 (Pa. 1950)). Here, the WSA failed
to designate the Katzes as third-party beneficiaries or otherwise indicate the parties’
intention to do so. Although the Pennsylvania Supreme Court has carved out a narrow
exception to the general rule that a contract expressly state that a third party is intended to
be a beneficiary,3 this exception “[does] not alter the requirement that in order for one to
achieve third party beneficiary status, that party must show that both parties to the
contract so intended, and that such intent was within the parties’ contemplation at the
time the contract was formed.” Burks v. Fed. Ins. Co., 883 A.2d 1086, 1088 (Pa. Super.
Ct. 2005); see also Scarpitti, 609 A.2d 147, 150-51 (noting that “unless, the
circumstances are so compelling that recognition of the beneficiary’s right is appropriate
to effectuate the intention of the parties,” the intention to benefit the third party must be
expressed in the contract itself).
3
The Supreme Court of Pennsylvania has adopted the Restatement (Second) of
Contracts § 302 test to evaluate whether a contract designates a third-party beneficiary.
Guy v. Liederbach, 459 A.2d 744 (Pa. 1983). Under this rule, “[u]nless otherwise agreed
between promisor and promisee, a beneficiary of a promise is an intended beneficiary if
recognition of the right to performance in the beneficiary is appropriate to effectuate the
intention of the parties.” Restatement (Second) of Contracts § 302(1).
The terms intended and incidental beneficiary used by the Restatement are more
specific terms for “third-party beneficiary,” which is “a short hand reference to intended
third parties beneficiaries who have the ability to enforce the agreement.” Chen v. Chen,
893 A.2d 87 (Pa. 2006).
9
Moreover, it is questionable as to whether the WSA was actually an enforceable
agreement, for the Katzes never signed it. The text of the WSA makes clear that the
Katzes’ execution of the agreement as parties was intended. Not only did the agreement
end with signature blocks for each of the Katzes following the declaration “IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
appropriate and authorized signatories,” but also stated
[b]y the execution of this Agreement, Katz, the Township,
and the Township Authority hereby expressly represent to the
Borough Authority that this Agreement is entered into with
full authorization and authority, with full knowledge that the
Borough Authority is relying on such representation in
entering into this Agreement.
Id. at 227-28. In addition to the clear language of the WSA, the testimony and
documentary evidence submitted to the District Court amply demonstrate that the
Matamoras Authority intended that the Katzes become parties to the WSA and execute it
as such. Township Solicitor Gregory Chelak testified that the Matamoras Authority had
rejected the first draft agreement, written by him, because it “did not include certain
parties that the Matamoras Authority wanted included in the agreement.” (App. 91.)
Solicitor Chelak further testified that he understood the agreement to require the Katzes to
be parties. (App. 106.)
The failure of the Township to secure a water service agreement guaranteeing the
Katzes third-party beneficiary status was a breach of the ESA/SAR Decrees and the
August 2005 Order. The Magistrate Judge abused his discretion in finding otherwise and
10
granting the Township’s 60(b) motion.
Accordingly, we will REVERSE the Magistrate Judge’s decision and reinstate
judgment for the Katzes. The case will be REMANDED to the Magistrate Judge for
further proceedings limited to consideration of the Katzes’ Motion for Litigation Costs
and Expenses.
____________________
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