LHR, INC. v. T-MOBILE USA, INC. , 977 N.Y.S.2d 816 ( 2013 )

SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
1085
CA 13-00751
PRESENT: SMITH, J.P., PERADOTTO, CARNI, VALENTINO, AND WHALEN, JJ.
LHR, INC., PLAINTIFF-APPELLANT-RESPONDENT,
V MEMORANDUM AND ORDER
T-MOBILE USA, INC. AND SUNCOM WIRELESS
OPERATING COMPANY, LLC,
DEFENDANTS-RESPONDENTS-APPELLANTS.
SCHRÖDER, JOSEPH & ASSOCIATES, LLP, BUFFALO (LINDA H. JOSEPH OF
COUNSEL), FOR PLAINTIFF-APPELLANT-RESPONDENT.
JAECKLE FLEISCHMANN & MUGEL, LLP, BUFFALO (B. KEVIN BURKE, JR., OF
COUNSEL), AND KLEINBARD BELL & BRECKER LLP, PHILADELPHIA,
PENNSYLVANIA, FOR DEFENDANTS-RESPONDENTS-APPELLANTS.
Appeal and cross appeal from an order of the Supreme Court, Erie
County (John A. Michalek, J.), entered March 25, 2013. The order,
among other things, granted those parts of the motion of defendants
for partial summary judgment seeking to limit plaintiff’s damages and
to dismiss the cause of action for intentional interference with
contract, but denied that part of the motion seeking to dismiss the
cause of action for conversion.
It is hereby ORDERED that the order so appealed from is
unanimously modified on the law by vacating the second, fourth, and
fifth ordering paragraphs, denying that part of the motion seeking to
limit plaintiff’s damages to $1.2 million, and granting that part of
the motion seeking to dismiss the 29th cause of action, and as
modified the order is affirmed without costs.
Memorandum: Plaintiff, a debt collection agency, commenced this
action seeking damages resulting from defendants’ alleged breach of
contract and negligence with respect to the sale by defendant SunCom
Wireless Operating Company, LLC (SunCom) of delinquent customer
accounts to plaintiff. From November 2005 until March 2008, plaintiff
and SunCom executed six “Purchase and Sale Agreements” (purchase
agreements). Four of the purchase agreements involved the transfer of
a single debt portfolio; the other two agreements, which the parties
refer to as “forward flow agreements,” provided for the transfer of
debt portfolios on a monthly basis. The purchase agreements are
largely identical, although the forward flow agreements contain
modifications to reflect the ongoing nature of the arrangement. As
particularly relevant here, article 5 of each of the purchase
agreements includes certain indemnification obligations on the part of
-2- 1085
CA 13-00751
plaintiff and SunCom, and provides that the “Seller,” i.e., SunCom,
“will not be required to indemnify, and will not otherwise be liable
to, [plaintiff] for Seller’s indemnification obligations under this
Article 5 for any amounts in excess of a maximum aggregate amount of
Two Hundred Thousand Dollars ($200,000).”
In or about February 2008, SunCom became a wholly-owned
subsidiary of defendant T-Mobile USA, Inc. (T-Mobile). According to
plaintiff, SunCom and/or T-Mobile, as successor in interest to the
purchase agreements, breached those agreements by failing to provide
plaintiff with documents necessary to verify the amount of the debt
transferred under the agreements. Plaintiff also initially alleged
that defendants acted negligently in failing to preserve the necessary
documents. Supreme Court granted in part defendants’ motion to
dismiss the complaint by dismissing the negligence cause of action
against SunCom, granted in part plaintiff’s cross motion for leave to
amend the complaint by permitting plaintiff to add a cause of action
against T-Mobile for intentional interference with contract, and
denied that part of plaintiff’s cross motion seeking to add a cause of
action against T-Mobile for conversion. On a prior appeal, this Court
modified that order by dismissing the negligence cause of action
against T-Mobile, and granting plaintiff leave to amend the complaint
to include a cause of action for conversion against T-Mobile (LHR,
Inc. v T-Mobile USA, Inc., 88 AD3d 1301). Defendants thereafter moved
for partial summary judgment seeking to limit plaintiff’s damages to
$1.2 million, i.e., $200,000 on each of the six purchase agreements,
and to dismiss plaintiff’s causes of action against T-Mobile for
conversion and intentional interference with contract. The court
granted those parts of defendants’ motion seeking to limit plaintiff’s
damages and to dismiss the cause of action for intentional
interference with contract, but denied that part of the motion seeking
to dismiss the cause of action for conversion. Plaintiff appeals and
defendants cross-appeal.
Contrary to plaintiff’s contention on its appeal, we conclude
that the court properly determined that the clear and unambiguous
language of the indemnification provisions of the purchase agreements
apply to this action. The purchase agreements provide that they are
to be “governed by, and construed and enforced in accordance with[,]
the laws of the Commonwealth of Pennsylvania,” and all parties agree
that Pennsylvania law applies here. “In undertaking the
interpretation of a contract under Pennsylvania law, the court must
begin with the language of the contract itself” (United States Steel
Corp. v Lumbermens Mut. Cas. Co., 2005 WL 2106580, *7 [US Dist Ct, WD
Pa, Aug. 31, 2005, No. Civ. A. 02-2108]). “The ultimate goal of
interpreting a contract is to ascertain and give effect to the intent
of the parties as reasonably manifested by the language of their
written agreement” (County of Delaware v J.P. Mascaro & Sons, Inc.,
830 A2d 587, 591, affd 582 Pa 590, 873 A2d 1285). Where contractual
language is “clear and unambiguous, the focus of interpretation is
upon the terms of the agreement as manifestly expressed, rather than
as, perhaps, silently intended” (Steuart v McChesney, 498 Pa 45, 49,
444 A2d 659, 661; see Halpin v LaSalle Univ., 432 Pa Super 476, 481,
-3- 1085
CA 13-00751
639 A2d 37, 39, appeal denied 542 Pa 670, 668 A2d 1133). “A contract
is not rendered ambiguous by the mere fact that the parties do not
agree upon its proper construction” (J.P. Mascaro & Sons, Inc., 830
A2d at 591; see Halpin, 432 Pa Super at 482, 639 A2d at 39; see also
12th St. Gym, Inc. v General Star Indem. Co., 93 F3d 1158, 1165).
Rather, “[a] contract is ambiguous if it is reasonably susceptible of
different constructions and capable of being understood in more than
one sense” (Trizechahn Gateway LLC v Titus, 601 Pa 637, 653, 976 A2d
474, 483 [internal quotation marks omitted and emphasis added]; see
Madison Constr. Co. v Harleysville Mut. Ins. Co., 557 Pa 595, 606, 735
A2d 100, 106).
Here, we agree with defendants that the indemnification
provisions at issue herein are broadly worded and encompass first-
party claims, i.e., claims between the contracting parties (see SBA
Network Servs., Inc. v Telecom Procurement Servs., Inc., 250 Fed Appx
487, 492 [3rd Cir 2007]; Waynesborough Country Club of Chester County
v Diedrich Niles Bolton Architects, Inc., 2008 WL 4916029, *4-5 [ED
Pa, Nov. 12, 2008, No. Civ. A. 07-155]; STS Holdings, Inc. v CDI
Corp., 2004 WL 739869, *2-3 [US Dist Ct, ED Pa, Mar. 19, 2004, No.
Civ. A. 99-3480]; Circuit City Stores, Inc. v Citgo Petroleum Corp.,
1995 WL 393721, *5 [US Dist Ct, ED Pa, June 29, 1995, No. Civ. A. 92-
7394]; see also Benchmark Group, Inc. v Penn Tank Lines, Inc., 612 F
Supp 2d 562, 594 n16 [ED Pa 2009]). We note that nothing in article 5
of the purchase agreements limits that article’s provisions to claims
commenced by third parties (see STS Holdings, Inc., 2004 WL 739869, at
*3; Circuit City Stores, Inc., 1995 WL 393721, at *5). To the
contrary, section 5.5 of the purchase agreements, entitled “Procedure
for Indemnification,” specifically contemplates first-party
indemnification claims. Because the relevant provisions of the
purchase agreements are unambiguous, we must enforce the language as
written (see Waynesborough Country Club of Chester County, 2008 WL
4916029, at *3; see generally Madison Constr. Co., 557 Pa at 606, 735
A2d at 106). Although plaintiff contends that such result is unfair
and economically unreasonable, it is well established that “[a] court
may not rewrite [a] contract for the purpose of accomplishing that
which, in its opinion, may appear proper, or, on general principles of
abstract justice . . . make for [the parties] a better contract than
they chose, or saw fit, to make for themselves, or remake a contract,
under the guise of construction, because it later appears that a
different agreement should have been consummated in the first
instance” (Steuart, 498 Pa at 51, 444 A2d at 662). Thus, the court
properly concluded that plaintiff is bound by the indemnification
provisions and, thus, the limitations on liability set forth in
article 5 of the purchase agreements (see STS Holdings, Inc., 2004 WL
739869, at *3).
We agree with plaintiff, however, that there is an issue of fact
whether the $200,000 limitation on liability applies to each of the
six purchase agreements executed by the parties or to each of the 28
debt portfolio transfers collectively consummated thereunder. In
order to affirm an order granting “ ‘summary judgment on an issue of
contract interpretation, we must conclude that the contractual
-4- 1085
CA 13-00751
language is subject to only one reasonable interpretation’ ” (Sanford
Inv. Co., Inc. v Ahlstrom Mach. Holdings, Inc., 198 F3d 415, 420-421).
Here, we conclude that the language of the purchase agreements is
ambiguous, i.e., it is “subject to more than one reasonable
interpretation when applied to a particular set of facts” (Shepard v
Temple Univ., 948 A2d 852, 857), and thus that the court erred in
granting partial summary judgment to defendants limiting plaintiff’s
damages to $200,000 per purchase agreement. We therefore modify the
order accordingly.
As noted above, the parties executed a total of six purchase
agreements containing the indemnification clauses at issue—the four
agreements transferring individual debt portfolios and the two forward
flow agreements. The forward flow agreements provide that each of the
monthly debt portfolio transfers are “[s]ubject to the terms of this
Agreement,” and that the accounts are to be “transferred and assigned
pursuant to a Bill of Sale in the form attached [t]hereto.” The
language of the forward flow agreements and the form bill of sale
support defendants’ interpretation, accepted by the court, that
article 5’s limitation of liability applies to the six agreements, not
to each separate debt portfolio transfer. According to the court,
“[c]onstruing the writings themselves, the Bills of Sale and
Assignments of Accounts were not intended to be separate agreements
from the [purchase agreements] under which they were issued.” We
note, however, that the parties did not use the form bill of sale
attached to the forward flow agreements for their subsequent
transactions, and that the bills of sale that they actually executed
appear to function as stand-alone agreements. Specifically, the bills
of sale accompanying each forward flow agreement do not refer back to
the forward flow agreement, but rather refer to a separate “Purchase
Agreement” dated as of the date of the transfer. The bills of sale
were accompanied by an “Inventory of Receivables included under this
Agreement”; a document listing the number and face value of the
accounts transferred, the total purchase price, the total due at
closing, and the closing date; and a cover page entitled “General
Terms and Conditions,” which is followed by a copy of the forward flow
agreement. The parties followed the same pattern with respect to the
first five bills of sale executed under the second forward flow
agreement. After plaintiff terminated the second forward flow
agreement and amended the agreement to provide for a lower purchase
price, the parties amended the bill of sale to refer back to the
second forward flow agreement.
We conclude that the imprecise language contained in the earlier
bills of sale is ambiguous, i.e., “it is reasonably susceptible of
different constructions and capable of being understood in more than
one sense” (Madison Constr. Co., 557 Pa at 606, 735 A2d at 206
[internal quotation marks omitted]). Specifically, it is unclear
whether the terms and conditions of the forward flow agreements—most
notably, the indemnification provisions—apply to all of the debt
portfolio transfers under a given purchase agreement or to each debt
portfolio transfer, individually. In our view, that ambiguity
presents an issue “of fact for the trier of fact to resolve in light
-5- 1085
CA 13-00751
of the extrinsic evidence offered by the parties in support of their
respective interpretations” (Sanford Inv. Co., Inc., 198 F3d at 421;
see School Dist. of City of Monessen v Farnham & Pfile Co., Inc., 878
A2d 142, 149; Juniata Val. Bank v Martin Oil Co., 736 A2d 650, 663;
see generally Community Coll. of Beaver County v Community Coll. of
Beaver County, Socy. of the Faculty [PSEA/NEA], 473 Pa 576, 592, 375
A2d 1267, 1275). Here, plaintiff’s president and vice president
averred that each debt portfolio purchased under the forward flow
agreements constituted a separate and distinct contract. Plaintiff’s
expert likewise opined that “[i]t is generally understood and accepted
in the [debt collection] industry that a forward flow agreement sets
forth the general terms and conditions for each successive monthly
purchase, and that each sale of a portfolio is a separate and distinct
contract or agreement.” Thus, in his opinion, there were “28 separate
contracts entered into between the parties” and “any limitation on the
indemnification obligation would apply to each separate portfolio
purchase.” In light of plaintiff’s extrinsic evidence and the well-
settled principle that “indemnity clauses are construed most strictly
against the party who drafts them especially when that party is the
indemnitee” (Ratti v Wheeling Pittsburgh Steel Corp., 758 A2d 695,
702, appeal denied 567 Pa 715, 785 A2d 90), we conclude that the court
erred in accepting defendants’ interpretation of the contract and in
limiting plaintiff’s damages to $1.2 million upon defendants’ motion
for partial summary judgment (see School Dist. of City of Monessen,
878 A2d at 149; Juniata Val. Bank, 736 A2d at 663-664).
Contrary to plaintiff’s final contention, we conclude that the
court properly dismissed the cause of action for tortious interference
with contract against T-Mobile. As SunCom’s successor in interest to
the purchase agreements, T-Mobile cannot be liable for interfering
with its own contract (see Ahead Realty LLC v India House, Inc., 92
AD3d 424, 425; Tri-Delta Aggregates v Goodell, 188 AD2d 1051, 1051, lv
denied 82 NY2d 653).
With respect to the cross appeal, we agree with defendants that
the court erred in denying that part of their motion for partial
summary judgment dismissing the 29th cause of action, for conversion.
“[I]t is well established that a cause of action to recover damages
for conversion cannot be predicated on a mere breach of contract”
(Schmidt v Lorenzo, 70 AD3d 1362, 1362 [internal quotation marks
omitted]). Because plaintiff “failed to show . . . that [T-Mobile]
engaged in tortious conduct separate and apart from [its alleged]
failure to fulfill its contractual obligations,” the cause of action
for conversion must be dismissed (LHR, Inc., 88 AD3d at 1304 [internal
quotation marks omitted]; see Matzan v Eastman Kodak Co., 134 AD2d
863, 863-864). We therefore further modify the order accordingly.
Entered: December 27, 2013 Frances E. Cafarell
Clerk of the Court